What does 2010 hold for global economy?

In an interview with CNBC-TV18, Arvind Subramanian, Senior Fellow, Peterson Inst for Intl Economics and Senior Research Professor of Johns Hopkins University, spoke about the big pluses and challenges for the global economy in 2010.

What does 2010 hold for the global economy? Will there be better growth signals? What about China, which most likely grew at 8.5%? Will it continue at that scorching pace of growth? What will it do with its currency peg? Will there be protectionist noises to counter that currency peg?

Here is a verbatim transcript of an exclusive interview with Arvind Subramanian on CNBC-TV18. Also watch the accompanying video.

Q: A lot depends on how the US economy might be able to build on the incipient growth signals or recovery signals that we saw in late 2009. What's your own sense, will 2010 be 4 quarters of at least clear growth in the US economy?

A: The typical experience in the United States is that the steeper the decline, the sharper the upswing on the recovery, and the faster it is. This indeed has been a pretty steep decline and one of the worst recessions. In this case the recovery is going to be less smooth and less sharp than in previous ones because of the problem in the banking system, in the financial system and the fact of over-indebtedness, especially for households.

So the forecast going forward is that, between June of last year and the end of this year, the United States would be lucky if it gets about 6-7% of growth. That's about an annual rate of about 3.5%. That's a little bit on the optimistic side. If the economy manages that it would be good news for the world economy.

Q: Do you think that serious dollar weakness is over and done with? Or is this incipient trend a decoy and the dollar strength is something that will vanish very quickly?

A: As an economist, I can say that the current level of the dollar, you know the dollar has declined substantially over the last eight-nine months, leaving aside little blips here and there. The dollar is kind of close to equilibrium value. On the basis of fundamentals, one can say that the dollar shouldn't be either certainly not appreciating too much, or certainly declining too much either.

I feel confident about US Federal Reserve not going to tighten prematurely. Ben Bernanke is a great student of 'The Great Recession' and one of the mistakes of 'The Great Recession' back in the 1930s was that policy was tightened too prematurely. This is a mistake that he's unlikely to make. So I don't see monetary tightening happening anytime soon in the United States. Therefore, that's another reason why I don't see the dollar appreciating significantly anytime soon.