In a week of government bail-outs and global interest rate cuts, contrasting views of prospects for the global markets and the world economy provided the backdrop for the third session of the Fund Strategy Investment Summit in Dubai.
Andy Xie, an independent economist based in Shanghai, gave a generally bearish view of the outlook for financial assets and global growth. He was particularly downbeat about Britain’s prospects.
Daniel Ben-Ami, the editor of Fund Strategy, was more measured. In his view it was likely there would be a prolonged period of slow growth punctuated by financial volatility. A key question was whether politicians managed to take concerted action to quell the panic.
Xie (pictured) argued that the world economy, and particularly the West, was paying the price for a prolonged consumption binge. “Anglo-Saxon economies are particularly dependent on credit-driven consumption,” he said.
Now that the bubble had burst, it was likely that much of the world would suffer a severe downturn. “One third of the global economy will crash,” he said.
Xie said Britain was particularly vulnerable. The small size of its manufacturing sector meant it was hard for the country to take advantage of a weaker sterling by exporting more. He forecast a 5% fall in Britain’s GDP as a result.
Another country vulnerable to the global slowdown, said Xie, was China, whose export sector was now so large it could not adjust by increasing its market share. The Chinese property sector was also likely to run into problems as firms had got caught up in a real estate bubble.
However, the Chinese authorities were likely to launch a huge infrastructure building programme to bolster the economy and counteract deflationary tendencies.
Xie foresaw China playing a much larger role in the world economy as a result of the crisis.
Ben-Ami argued that the slowdown was unlikely to be as severe as Xie predicted. The key question was to what extent politicians could take co-ordinated action to reassure businesses and the markets.
He pointed out that the only European country officially in recession so far was Ireland. It was likely that the eurozone and Japan would soon enter recession, but the prospects seemed to be for slow growth rather than a sharp downturn.