Structural reforms key for global recovery: Zoellick2 min read . Updated: 02 Apr 2012, 07:26 PM IST
Structural reforms key for global recovery: Zoellick
Boao, China: Policymakers in both developing and developed countries must embrace structural reforms to sustain economic recovery and cope with the hangover from loose monetary policy that could fuel new risks, World Bank president Robert Zoellick said on Monday.
“While the IMF focuses on macroeconomic stability, I’m trying to say: Keep your eyes on structural reforms for growth, whether it’s India, China, Europe, the United States, Japan or others," he said, referring to the International Monetary Fund.
“If countries don’t undertake the structural reforms for growth, there will be pressures on monetary authorities to continue the abnormal policies even though that’s not really a solution," he said.
The global economy has stabilised as the United States is showing a modest recovery, but the European economy may experience a period of “slower (growth) or no growth", he said.
Zoellick is wary of new economic risks, including asset bubbles, that could crop up after major central banks, especially those of the United States and Europe, have pumped out huge amounts of easy money to stimulate economic growth.
“I’m not critical of those steps, but I think it’s important to recognise that the steps simply buy time. They don’t solve the fundamental problems," he said.
“The nature of monetary bubbles is that you never can quite predict where it’s going to develop."
For China, more efforts should be made to boost consumption to wean the economy off its reliance on investment and exports, and economic reforms and opening up are needed, Zoellick said, although he did not foresee any “big bang" raft of changes.
China’s growth momentum unleashed by the country’s accession to the World Trade Organisation (WTO) a decade ago could be weakening, adding some pressures for Chinese leaders to push through some tough reforms, he said.
In February the World Bank said in a report that the world’s second-largest economy is near a turning point and should push through structural changes and move towards free markets.
Zoellick is pinning his hopes on the next generation of Chinese leaders, who are due to take office next year.
“This is not the year that I would expect the government to take big steps because it’s a political transition year."
President Hu Jintao and Premier Wen Jiabao are due to retire from their party posts late this year and from the presidency and premiership early next year, when Vice President Xi Jinping is likely to be named president and Li Keqiang premier.
When they hand over power in late autumn, China could be headed for its slowest full year of growth since Hu and Wen took office a decade ago. The economy ended 2011 with its slackest quarter of growth in 2-1/2-years at 8.9%.
Turning to the yuan, Zoellick said it may be too early to tell if the Chinese currency has reached its equilibrium level as it’s not fully convertible, which means the yuan’s rate may not reflect real market supply and demand.
Both Wen and central bank chief Zhou Xiaochuan have recently said the yuan is probably near a balanced level, even as they pledged to let the currency float more freely.