DAVOS, Switzerland — At the end of another turbulent week in financial markets, leading global policymakers Saturday sought to ease concerns over the economic outlook for 2016 and insisted that the slowdown in China is a natural turn for an economy in transition.
A high-level panel of finance officials being held on the last day of the World Economic Forum in this Swiss resort attempted to look through the markets’ harrowing start to the year and identify the big risks facing the global economy.
China cloud
China has been the main trigger for the recent market drop as investors take fright over the implications of a decline in economic growth. Figures last week showed that China grew by 6.9 percent in 2015, its lowest growth rate in a quarter of a century.
“I do not share the pessimistic view about the global economy suggested by these developments in financial markets,” said Bank of Japan Governor Haruhiko Kuroda. “For example, I don’t think the Chinese economy will sharply slow down or will be faced with hard landing risk in the future.”
Kuroda said the slowdown is a natural offshoot of what the Chinese authorities are trying to do: transform the economy from one based on investment and manufacturing into one that is more focused on consumption and services. He suggested China should impose some controls on how much money can leave the country as a means to keep the currency from falling too sharply.
Christine Lagarde, the International Monetary Fund’s managing director, said China’s economic transition is a “massive undertaking.”
Lagarde conceded that global growth in 2016 is set to be “modest” and “uneven” and faces risks, including problems in emerging markets such as Brazil. The dramatic drop in oil prices is putting a stress on many companies and countries.
She stressed, however, that the IMF still expects growth this year to improve 3.4 percent, from 3.1 percent in 2015.
Europe on cusp
For years, the future of what is now the 19-country eurozone has been a central concern at this Davos-ending panel, but it barely got a mention now that worries over Greece have eased.
A modest pickup in economic growth has also bolstered confidence that the single currency zone will not break up, but there are new worries this year — fears of a British exit from the wider 28-country European Union and a botched response to the refugee crisis. With at least another 46 people drowning in the waters of the Aegean Sea on Friday, Europe is under huge pressure to find a proper response to the crisis.
European policymakers have said that a strategy on how to handle, process and relocate migrants has to be agreed upon within the next six to eight weeks — before spring arrives and many more people escaping conflicts attempt the hazardous crossings, mainly into Greece and Italy. Failure to come up with a comprehensive strategy by then could spawn further problems, such as the end of the Schengen agreement, a pact that allows borderless travel between 26 European countries.
Lagarde said that from a personal point of view, this is “a bit of a make-or-break” moment for the Schengen agreement.
But if Europe can find a good way to manage the flow of refugees and migrants, the region can actually benefit economically from the new pool of labor. The IMF has said eurozone economic growth could rise by 0.2 percentage points, as much as 0.5 percent in countries such as Germany and Sweden.
Exit fear
Another concern vexing leaders in Davos all week has been Britain’s future in the EU.
Britain is the EU’s second-largest economy but has, as British finance minister George Osborne said, a “different relationship” to the bloc than the others. It’s not part of the Schengen agreement and doesn’t use the euro.
The Conservative government has promised a referendum on whether Britain should leave the EU by the end of 2017. But it has shown a willingness to hold it earlier, possibly this summer, if a deal reforming its relationship with the EU is agreed upon at a summit in February.
Osborne said there is “goodwill” to get a deal.
Osborne pointed to the EU’s history of securing deals at the last minute, as it has many times on Greece’s crisis.
