Economist: U.S. needs to fix financial market, China needs to stimulate domestic demand
The main task of the United States is to fix its financial market and get consumption moving, while China should change its growth model from export-driven to demand-driven, said Standard and Poor's global chief economist David Wyss.
As the global chief economist of the world's main credit rating agency, Wyss said in a recent interview with Xinhua that the U.S. economy, which entered recession slightly before its developed peers, was likely to have bottomed out in the second quarter of 2009.
"The U.S. had probably spent about as much as it could on fiscal stimulus. The drop of the unemployment rate to 10 percent in November was a fluke, or to be more exact, the jump to 10.2 percent in October was a fluke." Wyss said. He expected the U.S. unemployment rate to peak in the second quarter of 2010 to near 10.5 percent.
Wyss stressed that the high unemployment rate had to be tackled since it inhibits consumption, which accounts for some two-thirds of the country's gross domestic product (GDP) growth, and weak consumption would in turn hamper the economic recovery.
As for China, Wyss said, it would have to change its growth model. "The trade surplus was unsustainably high and growth would have to be driven by domestic demand, not exports."
"That would require more emphasis on domestic policies," he added.
Meanwhile, "low interest rates and huge fiscal measures would continue to support China's growth, with China's economy likely to expand 9 percent in 2010, " Wyss said.
Speaking on the current financial and economic crisis, the economist said Standard & Poor's analysts believe the worst of the downturn is over, with varying degrees of pain. In most cases, government stimulus and monetary policy have helped soften the blow.
He expected the economies of the eurozone, Britain and Japan to contract more sharply than that of the United States in 2009, with below-average growth rates likely in 2010.
However, he pointed out that the economies in most industrialized nations were slowly climbing out of recession, with some regions being able to dodge major downturns.
He added that non-Japan Asia was able to withstand less-favorable global conditions.
He said he didn't think the drop in potential growth was necessarily permanent, but growth would be slower for the next few years. The shift to China as a major engine of growth, especially for the Asian region, was accelerated by the crisis.
"Amid the worst global recession since World War II, China's GDP would expand an estimated 8.5 percent in 2009. Although below the 9-percent growth in 2008, Standard & Poor's expected China's economy likely to expand 9 percent in 2010 and average near that for another decade at least." said Wyss.
He added some qualitative changes are going on. Countries are beginning to realize, in a global economy and intertwined financial market, policies need to be coordinated more than ever.
[Source: Xinhua, Beijing, 03Jan10]
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