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Green Shoots or Straws in the Wind

DUBAI - While economists and bankers speaking on Sunday in Dubai said the worst of the financial crisis is over, they struggled to find a way to accurately describe the current situation.

Tim Fox, chief economist of Emirates National Bank of Dubai Capital was cautious about optimistic indicators.

“Not green shoots,” Fox said, alluding to a comment by British government economist Baroness Vadera that she could see the ‘green shoots’ of economic recovery. The comment brought controversy when opposition politicians said it proved Vadera was out of touch with people feeling the effects of recession. “Straws in the wind,” Fox said.

Protectionism, lack of participation from the private sector and slumping industrial production all indicate problems will continue through this year despite the modest growth in emerging markets.

Fox said issues of protectionism were raised in the first week of the new US presidential administration. Protectionism, he said “poses massive risks to the global economy recovering.”

Measures like government stimulus plans are worrisome, he said, because the private sector is not investing in the same way. “I’m concerned that as we go forward the private sector would be crowded out by the governments.” In the longterm, he said, recovery will be weak if this continues.

Waning demand has slowed industrial production. Only Asia is seeing growth, although it has dropped from approximately 15 per cent to 5. In European and Latin American emerging markets, industrial production contracted, according to IMF figures presented by the organization’s director for Middle East and Central Asia at the panel discussion at Dubai International Financial Centre.

“If you’d like the good news, and this is probably the only bit of good news that I’m going to have,” Ahmed warned the panel and audience. “We’ve come back from the brink of financial crisis.” He said the crisis peaked when the US government decided to allow Lehman Brothers to collapse. But internationally, the economy “remains under great stress.”

“While we are back from the brink of collapse we are still in a systemically high risk,” Ahmed said. Ahmed said countries with current account surpluses, such as oil-producing Gulf States, will be isolated from the most dramatic effects of the recession.

“The markets are distinguishing between those countries that entered with a relatively strong fiscal and current account position and the countries that had a large current account deficit.”

Despite the gloom, figures from the IMF show growth of 3 per cent by 2010.

emily@khaleejtimes.com