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World: Davos Experts -- Hard Or Soft Landing For World Economy?

  • Breffni O'Rourke

The World Economic Forum at Davos brings together many of the globe's foremost intellectuals and businessmen to debate the big social and economic themes of the day. One of the most pressing issues at this year's forum is the extent to which the U.S. economy is cooling, and its impact on the rest of the world. In one of the forum's first debates, a panel of distinguished economists pooled their thoughts on where the world economy is heading.

Davos, 26 January 2001 (RFE/RL) -- As the saying goes, if you put four experts together, you end up with five different opinions.

At times the debate among the prominent economists at Davos fit that description.

For instance, Alan Blinder -- professor of economics at Princeton University and a former vice chairman of the U.S. central bank -- said he sees what he calls a "bumpy-to-hard" landing for the U.S. economy. By that he means that the slowing of the long period of growth in the U.S. economy will bring considerable pain to corporations and workers alike.

Blinder sees the chances the United States will slip into a recession as about one in three -- the highest risk for years, he says.

By contrast, a top economist in the private sector, Kenneth Courtis at investment bank Goldman Sachs, is more optimistic. He says that the worst is already over. He believes that stock markets, characterized by losses and uncertainty in recent months, have reached bottom and are now about to begin a bull run -- that means a period of strong rises in value.

Courtis says the slackening in economic growth is not unique to the United States but is broadly common to all the advanced industrialized democracies in the G-7 group. Japan, he says, is in a particularly difficult position. By contrast, he says, China has achieved what he calls "magic" through its continued economic reforms.

Taking a middle road in the argument is Jacob Frenkel, an executive of the diversified U.S. financial services company Merrill Lynch. He says that what we are witnessing in the United States is merely a slowing of unsustainably high growth, and no global recession is in sight. He says too many new realities have been forged in recent years for that. He lists the technology revolution, the basic strength of the U.S. economy, and the restructuring undertaken in Europe as the sort of realities which cannot be wiped away by recession.

Blinder, like the other panelists, agrees that Europe will be affected by a U.S. slowdown. But he thinks that the transition economies of Eastern Europe, as well as Russia, will escape major problems. That's because Western Europe, the major trading partner of the east, will act as a buffer zone. Blinder says:

"They (that is, Russia and Eastern Europe) are somewhat vulnerable, but I think less so. If you start with Russia, Russia is considerably less dependent on exports to the United States, and therefore is not terribly vulnerable to a slowdown in the U.S. economy as a rich country like Singapore, which does export a lot to the United States, or like Hong Kong. That's true to a lesser extent for the other transition economies, like the Czech Republic, but they export rather more to the United States."

Another panelist, Juergen von Hagen of Germany's Bonn University, agrees that the impact of a U.S. downturn would be felt in Eastern Europe, but should be bearable. He says:

"Any significant slowdown in [Western] Europe would certainly hit Eastern Europe, but we are not facing [that situation] at the moment. We are looking merely at a weakening of growth, and so I think for Eastern Europe remains quite positive"

Turning to the theme of the European Union's economic condition, von Hagen notes that there is a great disparity of growth rates across the EU.

France, for example, is on the average, while Germany and Italy are below it, and peripheral countries like Spain and Ireland are above it. Von Hagen says that these disparities make the work of the European Central Bank particularly difficult in developing interest rate policies which suit all EU members