Is the world heading for a better year after hitting rock bottom in 2009? Not necessarily. Zhu Min, the outgoing Vice Governor of People's Bank of China, said the world economy's future looks bleak at a financial forum held in Beijing on April 11. Zhu is expected to resume his position as a special advisor at the International Monetary Fund (IMF) in May 2010. Edited excerpts follow:
For the vulnerable world economy, more ups and downs are likely in the latter half of this year.
When the IMF predicted a strong 3.9-percent growth for global GDP this year, the world cheered. But signs are emerging that desires to hang a "mission accomplished" banner may be premature. Much of the growth still comes from government stimulus. And the private sector has yet to recoup its strength. Worse still, there are four concerns that have been wracking the nerves of economists worldwide.
The first is excess liquidity that contributed to asset bubbles. The danger is likely to further escalate as policymakers in some countries hesitate to halt powerful monetary stimulus plans.
Second, the U.S. dollar remains a global reserve currency, but its wild fluctuation in recent months has left space for rampant speculation and stirred up waves in the financial waters.
Third, trade protectionism is placing more challenges in front of an already reeling export sector that will continue to hinder any growth in the job market. The unemployment rate in America and Japan now hovers just above 10 percent.
The fourth is the ongoing sovereign debt crisis now plaguing European economies. With heavy government deficits on their shoulder, most parts of Europe may see even darker times than those experienced since the financial crisis.
In the midst of the financial crisis, governments in the Western world rushed to bail out failed financial institutions, and helped rid toxic assets from their balance sheets. But the question is who will save the governments?
The real cause of the financial crisis lies in a deep-rooted imbalance of the economy, and it will take time for the world to find equilibrium on its own.
The over-leveraged financial industry is bound for a sharp reduction in size, as well as a shift to focus more on services for real businesses. Partly as a result of the crisis, the axis of the world financial industry is also moving eastward, catapulting Asian institutions onto the global stage.
On the broader economic landscape, the East is becoming more involved in terms of the global economy. China and India are expected to contribute a combined 50 percent to the world economic growth this year while the United States struggles to cope with the downturn.
There is no doubt that the developed world is reluctant to accept this trend and will spare no effort to regain its lost ground. The United States, for example, has vowed to prop up employment and its weak export market while Europe and Japan gear up for a foothold in advanced manufacturing.