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The Global Recovery Requires Local Prescriptions

There is no universal cure for global economy. Each country’s economy needs specific tools for recovery. Salvatore Rossi, Deputy Director General of the Bank of Italy, spoke at the HSE Banking Institute

Salvatore Rossi, Deputy Director General of the Bank of Italy, spoke at the HSE on ‘A Convalescent Global Economy: Are Monetary and Financial Policies the Right Cure?’ He believes that we can already talk about ‘recovering’ from the global economic financial crisis. Key indicators of this recovery are being seen not only in the developed economies. A considerable volume of activity is also being shown by transitional economies. This is a result of improving financial markets and a positive trend in global trade. And even though this activity is still far from pre-crisis levels, we should take into account that this growth started from a very low level. With a rather weak start in the beginning of 2013, a more apparent acceleration can be expected to occur in the second half of this year.

At the same time, according to IMF forecasts, in 2013 it is still necessary to remember the possible risks that can influence general economic growth. For example, in the medium term for developed European countries, the key factors limiting economic growth are the public debt crisis and tough credit conditions. In the USA, the abundance of budgetary limitations at the maximum level of debt may be an additional risk. In Europe, an additional risk may be the limited opportunities that exist to correct budgetary financial policy in the Euro zone. If speaking about the emerging economies, their main risk is still excessive investment which can result in ‘price bubbles’.

According to Mr. Rossi’s evaluations, one of the factors limiting economic recovery and GDP growth today is the low level of production taking place even in developed economies; it has barely returned to pre-crisis levels, and prospects for growth still remain poor.

Key difficulties for developed economies include the lack of an optimal correlation between debt and equity sources of funding in the public sector, as well as a limited supply of credit for the private sector. ‘There is a global financial imbalance here’, Rossi said.

A rapid and simultaneous tighteningof budgetary policies implemented by G20 countries could help solve the problem of imbalance in the public sector. Such measures can promote growth, but most probably they will be effective only in the short-term.<>

A closer European financial consolidation could promote a faster improvement in the Euro zone, Rossi believes. This consolidation could serve as a sort of regulator and a way to control financial imbalances in the European Union.

 

April 29, 2013