Economists and business split over scale of market crisis
The possible duration and effects of a US recession have been discussed and debated by leaders and economists in Davos.
23 January 2008
DAVOS - As economic confidence took a further battering Wednesday, the question repeatedly asked by politicians, business leaders and economists in Davos was how long a US recession might last and how would it affect the rest of the world.
US economist Nouriel Roubini was quoted saying that, in this case, the US was going to have not just a cold but a protracted case of pneumonia.
Chairman and Chief Executive James Dimon of the US global financial services group JPMorgan Chase & Co said: "Financial crises have happened every five years in the past 100 years and they have all been resolved."
He doubted that policy makers had the necessary tools to stop recession but might mitigate it.
US economist Fred Bergsten said even if the US went into recession the rest of the world was now "decoupled" to the extent that any spillover damage would be limited.
"When the US catches a cold now, maybe the rest of the world gets the sniffles - but certainly not pneumonia, and I'm not even certain the world catches a cold either," he said.
The emerging markets such as those of India and China now accounted for half the world economy. "Even if they slow down one percentage point they are still going to be growing at 6 to 7%" added Bergsten.
International financier George Soros believed there would be a significant shift of power and influence away from the US in particular and a shift in favour of the developing world, particularly China.
Soros, who made 1 billion US dollars betting on the devaluation of the British pound in 1992, said in a BBC interview at Davos that recession would be "very difficult to avoid in the US and in Britain."
Cheng Siwei, a Chinese economic specialist, said his country was worried about the US economic performance. "Until now it is not clear what impact the subprime crisis will have," he said.
Meanwhile a survey of global business leaders underscored a global split. It showed fear of a recession was the number one concern among CEO's globally, for the first time in more than a decade.
While business confidence had dropped dramatically in the US, down to 35% from 55% a year ago and also in Western Europe, it had surged among CEOs in India, China and Russia.
Samuel A DiPiazza, Global CEO of PricewaterhouseCoopers, which published the survey, said it showed a "tale of two worlds."
Up to 2500 politicians, business leaders, including 13 heads of central banks and leaders of international organizations are attending the five-day World Economic Forum, WEF, meeting in the Swiss mountain resort in eastern Switzerland.
[Copyright dpa 2008]