The New year thus begins amid uncertainties about strength of ongoing recovery in advanced economies – USA, EU and Japan – with unemployment rates close to double digit while concerns mount over the possibility of the sovereign debt crisis in Greece and Ireland spreading to other countries of the 16-nation Euro-zone. Caution rather than optimism marks the outlook for the global economy in 2011.

On the positive side, the decade produced a historic transformation in the global economic landscape with leading nations, developed and developing, coming together to help rescue a sinking world economy (2008-09) and to lay the foundation for a strong, sustained and rebalanced growth. The creation of G-20, designed as the premier forum for global economic decision-making is a landmark event, which holds the possibility of realization of the long-cherished goal of developing world – a new international economic order based on equity – which has been on the world agenda for four decades.

The international monetary system is also now in the process of being reformed for the first time since the creation of IMF in 1944. The Fund moved during 2010 to secure for itself legitimacy, credibility and greater relevance with a significant realignment of its enhanced quotas among member-countries reflecting their respective economic weights. Major emerging economies, China, India, Russia and Brazil, will now have greater voice in decision-making as they will be among the first ten in the 24-member Executive Board which will become an elected body.

But years of hard work are ahead for the scars of the Great Recession to heal and for the challenging tasks of restructuring of finances of highly indebted advanced economies and rebuilding of the global financial system to be accomplished. Then alone the stage can be set for the world economy to move into a new phase of sustainable expansion without serious imbalances.

Recession had cost some 30 million jobs in industrial countries taking global unemployment to the highest levels ever while 100 million people were added to the ranks of poor in the developing world. Apart from securing job-creating growth, the world community has to grapple with a host of major challenges in the new decade such as climate change, energy and food security, fulfillment of the Millennium Development Goals for social development, restructuring of debt and repair of the banking system especially in advanced nations.

The world economy is expected to grow by 3 to 3.5 per cent in 2011 and 2012 for which major contribution will be from emerging economies like China and India on a faster pace of growth, as in 2010.. An IMF assessment on the eve of New Year says “the two-speed recovery will probably dominate 2011”, and weak growth in advanced economies would be barely enough to bring down unemployment.

IMF Chief Economist Mr Olivier Blanchard says countries should continue to focus on rebalancing their economies through structural measures and exchange rate adjustments. Successfully growing emerging economies also face problems like how to avoid overheating and how best to handle capital inflows, he noted.. While trade has not yet fully recovered, most emerging market countries relied on domestic demand for growth which in turn has led to return of capital flows. “If well used, capital flows would help rather than hurt. But where there are fears of over-appreciation and over-heating, agreeing on broad “rules of the road” would be necessary, taking account both of country circumstances as well as global links, he said..

In USA, the recent package of tax cuts and unemployment compensation enacted by Congress at a cost to exchequer of 858 billion dollars has improved the outlook for growth in 2011 to between 3.5 and 4 per cent. Unemployment is expected to come down to 9 per cent from 9.8 per cent in November 2010.Economic signals were mixed in December but stock markets both in USA and Europe have made big gains during the month. Bigger banks with cash hoards are reported to have begun lending for commercial firms which reflects demand. Consumer spending which rebounded during the holidays is still to become a steady factor for growth recovery.

Many countries in Europe, including the euro-zone require tough macro-economic adjustments which would be extended over some years. The global crisis has worsened the circumstances for many countries which would have had even otherwise to undertake fiscal consolidation and debt reduction. The problem has become complicated for countries within a single currency union such as the euro-zone with a fixed exchange rate. The solvency of some indebted countries like Portugal and Spain has come under question with their ratings downgraded by global agencies.

Despite G-20 agreements on rebalancing growth as between surplus and deficit countries aimed at reduction of global imbalances, US-China trade tensions are again on the rise, basically arising from the huge deficits that USA has in its bilateral trade, of well over 220 billion dollars a year. Recently WTO upheld US tariff on tires from China on a complaint from Beijing USA has now taken up with WTO the Chinese subsidy for production of wind power equipment which, the Obama Administration contends, are “import substitution subsidies which are inherently trade distorting” and act as barrier to US exports.

Chinese leaders have so far firmly rejected President Obama’s call for greater exchange rate flexibility. China’s position is hardening in this as in several other economic matters. A Commerce Ministry spokesman said as a developing country, China must have a trade surplus and an export growth faster than global trade growth to protect its share of world trade. Sino-US economic relations would be a major topic when President Hu Jintao visits Washington on January 19, at the invitation of President Obama.

2011 has been set as the deadline for the completion of the decade-long Doha Round which had met with repeated failures on the road to a successful conclusion. Negotiating Groups will have a fresh round in January on revised texts in agriculture and NAMA (non-agriculture market access) for further negotiations so that the groups develop texts for final negotiations, before the end of March next.

The climate change negotiations are to be resumed in Durban by the end of 2011 in order to arrive at legally binding commitments under a new Treaty as successor to the Kyoto Protocol which expires in 2012. The Cancun agreements, though relatively limited, has been welcomed by all nations and is regarded as paving the way for final accords in Durban though some of the developed nations like USA and Japan were unwilling to come out with any commitments in Cancun. President Obama will have to make a new deal with the Congress so that USA is not out of line with the international community climate change and future of environment. (IPA Service)