In order to keep the recovery of the world economy on track and negotiate the pitfalls ahead, policy-makers, institutions and banks must be nimble and innovative to find new models of growth, agreed a panel of experts on the last day of this year’s Annual Meeting of the New Champions.
Global growth has returned to a robust 3.5%, but the new risks of geo-economic tensions, rising debt burdens and weak productivity growth threaten that recovery
Zhang Tao, Deputy Managing Director at the International Monetary Fund (IMF), warned that the debt burden and protectionism are threats to continued growth, as well as non-economic factors such as geopolitical tension. “We have to maintain openness to promote trade,” he said. “We have to push forward to promote innovations so that trade can be reintegrated. That’s the key.”
“There are short-term, imminent threats, for example from North Korea or Syria,” said Rintaro Tamaki, Deputy Secretary-General at the Organisation for Economic Co-operation and Development (OECD), “but other concerns are more long-term structural issues, like climate change, digitalization and ageing.”
Cybersecurity is a key concern. “The truly bad crises come as big surprises,” warned Tyler Cowen, Professor of Economics at George Mason University, USA. “Number one, I think by far, is the risk of a cyber attack.” China’s new cybersecurity law came into effect last month, amid concerns it was also intended to benefit domestic corporations, and recent ransom-software attacks have escalated.
In China, risks in the banking system and lack of state-owned enterprise (SOE) reform have given cause for concern. But Cowen argued that a major bust is unlikely. “I don’t think China is the main risk,” he asserted. “There’s a resilience to the Chinese system where explosions get localized.”
“A lot of people globally still feel that the renminbi will depreciate,” said Helen Zhu, Managing Director and Head of China Fundamental Equities at BlackRock, “and therefore, even though you get slightly higher yields in China, maybe it’s offset by the risks that people perceive.” She reassured: “These things will be resolved over time with more structural reform.”
Japan is fiscally stable, but inertia is the kiss of death for growth, warned Tamaki. “People have mixed feelings about the status quo,” he said. “They want to maintain their lifestyle but, on the other hand, they look at the risks in the future and everything has to start now to address those structural issues.”
Uncertainty in the United States is also destabilizing. “Trump as a domestic president is highly ineffective on any policy, foreign or domestic,” admonished Cowen. “I see confidence ebbing and uncertainty increasing and a slow dribbling away of the advantages we had from the recovery.” A lower outlook for growth in America further risks the economic prospects of its trade partners and allies.
“Whether life is better in 2030 depends on what we do from now,” said Zhu. “If we choose the easier path, which is no reforms but keep the status quo and kick the can down the road, potentially by 2030 life won’t be as good as it is today. If we’re willing to take a lot of risks and implement changes … in a decisive manner in the next three to five years, we have a very bright outlook for 2030.”
“If you do not take risk,” Cowen summarized, “risk will come and get you.”
The World Economic Forum’s 11th Annual Meeting of the New Champions is taking place on 27-29 June in Dalian, People’s Republic of China. Convening under the theme Achieving Inclusive Growth in the Fourth Industrial Revolution, nearly 2,000 business leaders, policy-makers and experts from over 80 countries will explore more than 200 sessions over the three days of the meeting.