|
DAVOS, Switzerland, Jan 26 (AFP): Deepening concern about US deficits and a possible oil supply shock are weighing on a world economy that will be driven largely by China during 2006, a panel of leading economists predicted at the World Economic Forum yesterday.
"This is the year to watch out carefully for the end of the great American spending binge," Stephen Roach, chief economist at US bank Morgan Stanley, told the annual meeting of global business and political leaders.
Just hours after China announced that its economy had grown by 9.9 per cent in 2005, the panel said Chinese growth was set to continue at the kind of pace that helped it leapfrog over Britain and France to become the world's fourth-biggest economy.
However the four economists cautioned that while Chinese policymakers appeared to be moving to prevent their economy overheating, there was little sign of action in the United States to tackle imbalances.
Roach cautioned that investors appeared to be "plugging ahead irrespective of current account issues and the asset price bubble".
"What's occurring right now in markets and in policy circles is a dangerous degree of complacency. And out of complacency usually comes the surprise that ends up doing the most damage to markets and economies."
The danger lurking behind the high US current account deficit is that foreign investors might begin to lose confidence in the US economy and start withdrawing their assets.
This would cause a fall in the value of the dollar and could lead to a sharp growth-dampening increase in US interest rates.
The panel warned that other parts of the world such as Asia where savings levels are high-would need to compensate for a forthcoming slump in US consumption.
Laura Tyson of the London Business School commented: "I think that's understood as a policy issue in China. I don't think it's understood as a policy issue in the United States."
Growth in China fuelled by export demand is set to reach 8.8 to 9.3 per cent in 2006, according to Min Zhu, executive assistant president Bank of China.
French Finance Minister Thierry Breton acknowledged China's stature as he arrived in the Swiss Alpine resort of Davos.
Another report said: Twenty-seven years after an official delegation from China first appeared before a skeptical audience at the World Economic Forum, the Asian giant's booming economy has become the toast of Davos.
The transformation of a communist regime that was outwardly hostile to capitalism into one that proudly proclaims its free market credentials is greeted with a mixture of admiration and trepidation by the western-dominated club of corporate chiefs and political elites.
|