“Cautious optimism” in the short term, and “great expectations” for the long term would best summarize the mood of the panel of experts who kicked off Wednesday’s deliberations at The Premier Business Leadership Series. Gerard Lyons of Standard Chartered and Linda Yueh agreed that there will be a lot of volatility over the next few months: she described the recovery as resembling a drunken V. By that she meant that we are gradually getting back up on our feet but it’s taking a while, and we can expect some volatile business cycles.
Gerard remarked that, two years into the recovery, policy institutions including the world’s most important central banks – the Fed and ECB – had done a great job of lifting us out of the recession but their fiscal policy cupboard was now bare. So the immediate road ahead would give us a bumpy ride and growth prospects look a lot better in the eastern hemisphere than in the West. Gerard LyonsLonger term, the picture looks better. We could even be on the verge of what Gerard called a “third supercycle” to match the sustained periods of growth from 1870 to 1913 and from 1945 to 1972. Unlike the first two, which were driven by the United States and Western Europe, this third supercycle will be driven largely by the new economic powers of China, India, Brazil and even Africa. In the West, we should embrace this change because it will bring about the long-term political and economic stability that is necessary to ensure prosperity right around the globe. “According to the OECD, the middle classes will expand to 4.8 billion over the next 20 years. So, while we should not be complacent, the prospects look good.”
Don’t blame the Euro!
Karel Lannoo of the Centre for European Policy Studies reinforced this view, from a European perspective. In Europe there is too much doom-mongering about sovereign debt. Greece is supposed to be a basket case, yet if you compare Greece’s debt situation in 2011 it is actually better than that of Belgium’s in 1993. “Just give it time and Greece will restructure and so too will the other countries on the periphery.”
In fact, today the situation is better because the institutions exist to keep the debt situation under control and to help resolve Eurozone debt crises. That means Greece is paying interest of 4.5 percent rather than 16 percent.
Gerard Lyons commented that the main problem was in fact a political and economic one. “We have the MU part of the EMU, the monetary union, but the E is weaker – people do not understand the economic benefits. Politicians, especially in the core countries of Europe like Germany, need to do a better job of sell the idea of economic solidarity to their electorates, added Linda Yueh.
