World economic imbalances are chilling global economic activity, say ICC economists
On the eve of the G7 finance ministers meeting in Washington last weekend, ICC’s Corporate Economists Advisory Group (CEAG) met to discuss the outlook for the world economy and to share their views on matters of concern for world business. Their analysis will help shape the statement that ICC will deliver on behalf of world business to the heads of states and governments of G8 countries prior to the G8 summit in Gleneagles, UK, on 6-8 July.
Ten countries (Finland, France, Italy, Norway, Russia, South Africa, Sweden, Switzerland, Turkey and the UK) and industries including banking, food, consumer products, media, automobile and energy were represented by economic experts, who gave the following assessment of current key economic issues:
Global imbalances: The single biggest risk to today’s world economy is the global imbalance characterized by the burgeoning US current account deficit, Europe’s lack of growth and Asia’s excess savings. This situation is not sustainable and an abrupt correction could greatly disrupt the world economy. This global risk has a chilling effect on economic activity at the global level.
Euro-zone: The outlook for the Euro-zone continues to be rather gloomy despite efforts by continental Europe to introduce reforms. The recent combination of low productivity growth and high unemployment is a worst-case scenario, which leaves little hope for sustainable recovery before 2006. There are striking differences between the economic performance of Euro-zone countries and non-Euro countries, such as the UK or Sweden.
Oil: The oil market is in a very tight situation. Any incident could provoke a spike. There are repeated signs that we have left the “low-cost energy” era for good. On the supply side, there seem to be many potential fields of production in Latin America, Africa and Central Asia, but these are found in countries that are not open to international investment. Interestingly, there now seems to be a new focus on energy efficiency and alternative sources of energy, not only in Europe but also in the US.
Development aid: Development aid was at the centre of debates at the G7 finance ministers meeting. The private sector could be of tremendous help as a source of finance for development. This should not be fostered by introducing international taxes on financial transactions or air travel, as is proposed by a few G7 countries, but by providing incentives for investment and donations by companies and private individuals.