Davos 2013: Global mkts to see recovery this year, say experts

The World Economic Forum (WEF) kicked-off proceedings with round 2,655 business leaders, politicians, academics, billionaires, artists attending the gathering in Davos, Switzerland.

In an interview to CNBC-TV18, renowned economists Kenneth Rogoff of Harvard University and Fan Gang, National Eco Research Institute spoke about whether the US economy will get back on track this year. According to Gang, the worst is over for global economy and 2013 looks better than 2012. Also Read: Falling CEO confidence sets scene for anxious Davos Rogoff said, "Political economy is not getting solved anytime soon as the two sides get further and further apart. We are just seeing a skirmish in a longer set of battles and even war over spending priorities, the role of government." The idea that there is going to be a grand bargain and its all going to be settled is very optimistic. They may at least come over the grand bargain to take us through a year, but I don’t think we are going to have a 10 year plan that is sustainable and credible." When asked whether people around the world should be prepared for a year of fairly weak growth in the US and a year of no growth in Europe Rogoff said that growth will get a little better in the US even with this cloud because you are coming from such a low base and such high unemployment. The US has a better trajectory than Europe. However I don’t think it is going to be fantastic even in the best of situations. Further Rogoff adds that he is looking for an estimate of 2.5 percent. Considering fourth quarter it could be 2 percent, 4 percent or high 2-3 percent. Chinese economist Gang believed that 2013 would be better than 2012. "We don’t expect the US and Europe to get a normal growth or high growth. The worst part is already over. Euro has stabilised and European economy is still low but stabilised, not going down further," added Gang. Further Gang expects the US to come into a recession and that will provide a list of conditions for the world markets. Most of the countries of emerging markets expect higher growth in 2013. Below is the verbatim transcript of an interview of Kenneth Rogoff, aired on CNBC-TV18. Q: I want your views on what you make of where the US political economy is right now and the broader economy as well? A: I think that political economy is not getting solved anytime soon as the two sides get further and further apart. I think we are just seeing a skirmish in a longer set of battles and even war over spending priorities, the role of government. So, the idea that there is going to be a grand bargain and it is all going to be settled, is very optimistic. They may at least come over the grand bargain to take us through a year but I do not think we are going to have a ten year plan that is really sustainable and credible. _PAGEBREAK_ Q: What does three months postponement mean and if they do not strike a grand bargain what does it mean for the US economy given that growth prospects were not very good to begin with? A: I think President Obama has adopted a more factor negotiating strategy of not negotiating basically because he just went giving and clearly did not do well the earlier rounds. The three month postponement is simply because he was succeeding publicly, evidently as an outsider and so they retreated but they did not surrender. I think longer term disagreements about how big the military should be, how big should all the entitlements be, how redistribution area or how the tax be. These are difficult question and the country does not agree and it is finely divided. If you follow presidential elections, which President Obama won but you can just change a few 100,000 votes in few states and it would have been different and both sides were very entrenched and unfortunately the middle has disappeared in the more extreme positions. Q: What does it mean if the debt ceiling is postponed by three months? Does this mean that the US is looking at rating issues, there are likely to be downgrades given that it is not doing what it needs to, to curtail its fiscal deficit issue? How do we assess what the outcome of this impasse is going to be and hence the impact on the US economy? A: I think the impact comes not from a downgrade in ratings or from some signal of that that changes everything. I hope not, it is pretty unlikely. It comes from a paralysis where you can go on for a long time without doing anything or changing anything -structural reforms but after a while you have to make decisions, not just about the size of the deficit but there is just a lot of issues and they do not agree and so the government becomes kind of dysfunctional and that is not good for productivity. There are lots of low hanging fruit that they ought to be doing but they cannot because somebody is fighting over something.  Q: So, we should be prepared for a year of fairly weak growth in the US and a year of no growth in Europe? A: Growth will get a little better in the US regardless even with this cloud because it is coming from such a low base and such high unemployment. I think the US has a better trajectory than Europe. However, I do not think it is going to be fantastic even in the best of situations. Q: You are looking at 1.5-2 percent in your estimate? A: For the year may be 2.5 percent. If you are looking where we are in the fourth quarter it could be 2 percent, it could be 4 percent most likely high 2-3 percent. Q: What is your assessment of Europe? Many of the business leaders I have spoken to here seem to believe it could be a year of no crisis, a status quo no improvement but no crisis either. How do you look at the journey that Europe has had last year and where it is at today? A: The head of the central bank, Mario Draghi played well in using the very limited cards that he had to buy a lot of time and he has bought a lot of time. He certainly probably bought 2013 but the question is, are there going to be reforms, are they going to integrate politically in Europe. You heard talk about it but what agreements will they actually come to when they realise the public realises the level of integration that is involved. I think they are very far from agreement on so many fundamental issues that festers. I guess the fear is if there is no panic, if there is no crisis, will they do anything. So, I expect on one hand no crisis but I do not think we are going to see at the end of the year why they did it all, we have got a clear decade ahead. I think more likely is Europe will be paralysed for a very long time.