Global economic recovery remains fragile

Exit from pro-growth monetary policies carries risks, say economists

The recovery of the world economy remains fragile at large, economists said on Wednesday at the eighth Annual Meeting of the New Champions in Tianjin, cautioning against potential risks arising from a retreat from the unconventional monetary policies that helped put the global economic recovery back on track.

While the US is seen to be leading the current global recovery, the European economies and Japan have yet to fully emerge from recession, and growth in 90 percent of emerging economies was seen cooling over the past 18 months, Zhu Min, deputy managing director of the IMF, said at a panel discussion during the meeting, also known as the Summer Davos Forum.

In light of the uneven recovery that points to an uncertain outlook, the Washington-based lender ratcheted down its global growth projection to 3.4 percent in July from an earlier forecast of 3.7 percent.

Against this backdrop, it would be a big concern for the world economy in 2015 as it faces a possible exit by the US Federal Reserve from its long period of massive bond purchases, according to Zhu.

If the US Fed's retreat from the unconventional monetary policies occurs concurrently with volatilities in the financial markets, there can be a tremendous negative impact on the US economy and the world economy as well, Zhu warned.

The European Central Bank's recent announcement of further monetary stimulus that serves to ease deflation fears in the eurozone, coupled with a truce negotiated between Ukraine and Russia which indicates geopolitical risks being put in the backseat, is likely to intensify speculation that the US Fed may resort to normal means of hiking interest rates, DBS Bank said in a note sent to the Global Times on Wednesday.

For the time being, however, it is not time to discuss a return to conventional approaches to monetary policy, as the global economy remains in a process of exiting from the crisis, Kenneth Rogoff, professor of economics and public policy at Harvard University, said at the same session.

As for China, a significant powerhouse of the global economy where a slew of pro-growth targeted measures have kicked in over the past few months, a conspicuous loosening of the monetary policy is unlikely despite downward pressure on the economy in the near-term, Zhang Lei, a macroeconomics analyst with Minsheng Securities, told the Global Times on Wednesday.

With structural reforms on top of the government agenda, policymakers would be continuously in favor of targeted measures rather than universal policy changes which might mask the structural problems of the country's economy, according to Zhang.

　　Voices

"China's economy is still maintaining a robust growth momentum with large-scale investment in sectors like infrastructure construction. But downward pressure still lingers, mainly in the real estate sector. Property investment may continue to drop, as home sales are still sluggish,"said Ma Jun, chief economist at the research bureau of the People's Bank of China, said at Summer Davos in Tianjin.

"China's economy should focus more on quality and efficiency in the future rather than the growth rate. China needs to change its model of development and upgrade its industries. Domestic consumption should play a more important role in driving growth... And we need to focus more on the services sector,"

Zhang Xiaoqiang, former vice chairman of the National Development and Reform Commission, said at Summer Davos in Tianjin on Wednesday.