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Economic news – Embassy 58

Hard times ahead for world economy

The world’s economy is flat-lining and even “the most expansionary monetary policy in the history of the world” has been unable to jump start it, the FT’s associate editor Martin Wolf told an audience of press and economic attachés at a recent DPAAL meeting at the Embassy of Brazil.

A depressed Europe, a limp recovery in the US and UK, stagnant productivity, and a marked slowdown in the emerging economies have combined to create a grim picture, he said.

A low oil price may provide a temporary boost to the oil importing countries of Europe, but it also could precipitate a financial crisis in commodity exporting economies, he aded.

The award-winning economist prescribed two anti-depressants for the world economy. The first was the potential of new technologies to accelerate sluggish productivity.

The second, and possibly more challenging solution, would be to enable the GDP per capita of many more developing economies to “catch up” or converge with the developed world – as China has managed to do.

India, he argued, was the world’s brightest hope. “But as Mexico proved in the 1950s, convergence is very hard,” he warned.

Of the major risks that need to be managed Wolf listed climate change; terrorism and geopolitical issues in the Middle East and tensions between Russia and the West; managing the deflation/inflation trade-off when inflation returns; soaring inequality; demographics and migration; a Eurozone break-up; and the end of globalisation.

 “We are in a geopolitical transition,” he concluded. “And geopolitical transitions are difficult to handle.”

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Martin Wolf

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