/ 26 January 2006

Burgeoning problems divide Davos delegates

A lengthy list of policy headaches, ranging from Iran’s nuclear threat to the stalled global trade talks, greeted more than 2 000 business, government and civil society leaders as they gathered in the Swiss ski resort of Davos on Wednesday for the annual meeting of the World Economic Forum (WEF).

Faced with a cocktail of problems that would have spelled political and economic chaos a generation ago, sharp divisions were evident from the outset between pessimists convinced the world is living on borrowed time and optimists who argued that the doomsters are ignoring signs of hope.

Jim O’Neill, head of global economic research at Goldman Sachs, professed himself to be ”quite cheerful and getting more optimistic”. The world economy is on course to enjoy the best three years of growth since World War II and there is evidence that China — a big theme at Davos this year — was forcing countries such as Japan, India and Germany to embrace much-needed reforms.

With Germany’s Chancellor, Angela Merkel, opening the WEF on Wednesday night, O’Neill said Europe’s biggest economy is, at last, turning the corner. ”A bit of a mini-revolution has been going on in Germany.”

A different insight came from Stephen Roach, for years the most bearish of Wall Street analysts, on the United States economy. Roach, the chief economist at Morgan Stanley, said markets and policymakers have developed ”a dangerous degree of complacency”, assuming that an unbalanced world economy could continue without correction.

Roach, who delivered a similar warning at last year’s Davos, said Asian central banks have helped keep the show on the road for longer than could have been expected, but that with Alan Greenspan, the chairperson of the Federal Reserve, due to be replaced by Ben Bernanke after more than 18 years at the helm of the US central bank, tougher times are coming.

The American consumer — both ”the weakest link” and the most important — has continued to drive the world economy by spending on the back of a property bubble, but the boom is running out of steam, with the key indicator of home mortgage refinancing down 45% from peak levels a year ago.

A number of sessions in Davos over the next few days will be devoted to the price of oil, which has stayed higher for longer than participants envisaged a year ago. China’s strong growth is seen as a prime cause of the rise in all commodity prices, including oil, and O’Neill said that even if the country’s growth rate halved to 5%, it would still overtake the US to be the world’s biggest economy by the middle of the century.

Amid fears in the West that spectacular growth in China and other developing countries would lead to job losses in the West, the US Labour Secretary, Elaine Chao, sought to reassure American workers on Wednesday that a 30 000 cut in Ford’s workforce announced last week was not the start of a rise in unemployment.

”While these jobs may be going away, there are new jobs that are being created and therefore the retraining and training of new workers coming into the workforce is of paramount importance,” she said, adding that 2,4-million jobs were created in 2005.

Hopes for an immediate breakthrough on two pressing issues — Iran and trade — looked remote on Wednesday night. Kofi Annan, the United Nations Secretary General, saw little prospect of Iran’s nuclear programme being discussed by the UN Security Council next month because it would take time for the International Atomic Energy Agency to prepare a report.

Trade sources also said a meeting of 25 ministers planned for the fringes of the WEF was unlikely to jump-start the talks before April’s deadline. — Guardian Unlimited Â