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Global
Economic Prospects and Challenges
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is a time of opportunity, for both Asia and the world.
We are enjoying a period of rapid global growth and low
inflation that has not been seen since the 1960s. This
year, global growth, fuelled by continuing worldwide productivity
improvements, remains high-despite rising interest rates
and continued high oil prices. We expect 2007 to be another
year of solid and broad-based growth. In the United States,
the speed of the expansion appears to have moderated.
But expansions in Europe and Japan will support global
demand. China and India will continue to grow rapidly.
And prospects are good in many other countries, including
some of the poorest. However, the global growth cycle
may be close to its peak. Educated and skilled labour
is in tight supply, and the scope for continuing productivity
improvements may be diminishing.
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"For
the sake of its own economy, as well as the wider world,
the United States should take advantage of its good growth
performance to make sustainable reductions in its structural
fiscal deficit." |
Article
by
Dr.
Zia-Ur-Rehman |
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The best hope for continued high growth lies
in further increases to international trade. If this does not
happen, the outlook is less encouraging. In fact, I see three
clear risks to global economic prospects. First, high oil prices
could still lead to higher inflation. Second, there is the continued
risk that global current account imbalances will unwind in a
disorderly way. Third, there is a growing risk that protectionist
sentiment will overwhelm good sense. If it does, all other risks
loom larger.
The first risk is continued high oil prices. Up to now, the
world has lived with high oil prices without serious problems.
But these may emerge if supply remains tight. Oil-producing
and oil-consuming countries have generally reacted sensibly
so far. For example, the Gulf Cooperation Council countries
have increased planned investment to expand oil and gas output
and refining capacity. And countries such as Indonesia and Egypt
have reduced subsidies to consumers and replaced them with targeted
social spending. But we are not out of the woods yet. We still
need more investment and energy conservation. And it is important
to avoid mistakes. Attempts by producer-country governments
to make short-run gains by taking a larger share of oil and
gas revenues will backfire if they result in reduced efficiency
and lower investment. So I would urge governments to consider
carefully how to get the most benefits from oil and gas resources
for their citizens in the medium-term. The second risk to economic
prospects is a disorderly unwinding of global imbalances. The
current account imbalances between the United States and other
large economies are not sustainable. And they are creating further
imbalances, both economic and social. There is broad agreement
on what should be done to reduce these imbalances in an orderly
way. For the sake of its own economy, as well as the wider world,
the United States should take advantage of its good growth performance
to make sustainable reductions in its structural fiscal deficit.
For the sake of their own growth, as well as the growth of the
wider world, Europe and Japan should implement further structural
reforms-especially product market reform-and prepare for the
impact of aging populations on their budgets. And for the sake
of its own economic stability, as well as the stability of the
wider world, China should strengthen its financial sector, boost
domestic demand, and use the exchange rate flexibility it gave
itself a year ago. The third risk I want to talk to you about
is protectionism. The suspension of the Doha Round talks is
deeply disappointing and damaging. It delays an agreement that
would raise prosperity and support growth around the world.
And it feeds a growing inclination towards at best bilateralism,
and at worst protectionism. The stakes are far too high to accept
failure. Let me take this opportunity to call on the G-7 countries
and the major emerging market economies to intervene quickly
to conserve the gains made in negotiations so far, and to put
the Doha Round back on track. On trade, the world will either
go forward to greater growth and broader opportunities, or backward,
to narrow nationalism. We should not fool ourselves that there
is a comfortable middle ground.
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