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Global Recovery will be Patchy in 2010

DUBAI — The global economy will continue to struggle in 2010, but recovery will be quicker and stronger in the Middle East, China, India and Southeast Asia compared to other regions.

“Recovery will be quite patchy, but Asia, particularly China, India, Singapore and Hong Kong are doing well,” Howard Davis, director of the London School of Economics and the Global Agenda Council on Global Investment Flows, said on the sidelines of the World Economic Forum. The Middle East on the other hand, is bouncing back due to higher oil prices.

“The Middle East has really ridden the commodity price roller coaster more than anything else. The commodity price cycle has certainly turned around and because of this, the economies in the region stand to recover quite quickly.”

In Asia, the stimulus measures have worked well, with China expected to grow by 8.5 per cent this year, said Laura Cha, deputy chairman of the Hong Kong and Shanghai Banking Corp.

“China has led Asia out of the doldrums because of the huge infrastructure investment by the government. The industrial growth accelerated and production was spurred by domestic demand. It is also encouraging intra-regional growth,” 
said Cha.

In contrast, developed countries are not expected to recover at the same pace as emerging economies, and governments are facing tough choices, particularly in whether stimulus measures will be sustained. “We’ve had some extraordinary but artificial measures to prop up growth. But governments cannot continue providing these stimulus and let their fiscal deficits get bigger,” said Rick Samans, managing director of the World Economic Forum.

Samans said it is too early too predict if most economies can stand alone if the stimulus packages are finally withdrawn. “These measures were necessary to break falling economies, and that has spurred domestic demand. But the issue is whether economies can flourish in a more sustainable fashion, beyond being reliant on fiscal stimulus,” added Samans.

Davies said some countries will have to keep providing stimulus, especially those that were badly devastated like Iceland, where there is no chance that they can cut down on their fiscal stimulus in the 
short-term.

The huge unemployment amid a sputtering growth in developed countries is also adding to the fiscal strain of their governments, he added.

“Unemployment tends to be very expensive because the benefit level is high. This is unlike in an oil-producing country that can turn around much more quickly than if you are a diversified economy like the United Kingdom. In the Middle East, people go back to their countries in a downturn where those that leave do not get much of the social benefits.”

· rocel@khaleejtimes.com