Fog of exit strategy

Facing the unprecedented crisis, the international community and most of governments launched a series of vigorous stimulus packages, including both expansive monetary and fiscal policies.

According to IMF data, the total sum of aid capital promised by the Group of 20 countries has amounted to US$12 trillion as of June. Moreover, many major central banks jointly lowered their benchmark interest rates at the climax of the crisis.

Furthermore, governments also tried their best to enhance public input to stimulate the economy. It is estimated that the US deficit this fiscal year will amount to 1.58 trillion dollars and Great Britain US$106 billion.

Nevertheless, the central banks of major economies still thought they should keep loose monetary policies in case of a second recession.

Economists said a "strong prescription" was really necessary, but it also possibly led to "side-effects."

Inflation could be one of the fatal risks, economists said.

Economist Arthur Laffer warned that "while the short-term pain of a deepened recession is quite sharp, the long-term consequences of double-digit inflation are devastating."

Based on the above concerns and the earlier-than-expected recovery signs of most major economies, G20 finance ministers and central bankers who met in London earlier this month have made "exit strategy" a topic for discussion.

Some economies have already begun to change their priorities to prevent the risk of serious inflation. The Israeli central bank raised the country's interest rate in August. Australia, South Korea and India will do the same in the coming months to prevent their economies from becoming excessively hot, Riccardo Barbieri, Merrill Lynch economist said.

However, it remains unclear if the big bill for the stimulus package is "fiscally responsible for countries with huge budget and current account deficits," said Zhu Qiwen, a China Daily commentator.

Analysts say large amounts of deficits could possibly trigger a crowding-out effect in the short term, and cause a negative effect on capital formation and private consumption in the long term.

Kristin Lindow, senior vice president of Moody's Investors Service, called people to watch for the threat of a public finance crisis.

Therefore, the policy-deciders faced the problem that both "exit strategy" and "strong prescription" had their own abuses.

Fog of economic roadmap

Analysts are divided on whether the economy now faces a quick rebound in a V-shaped recovery, a more subdued U-shaped recovery, a W-shaped rebound or a L-shaped one, in which growth would return for a few quarters or become weaker once more.

Optimists said the current recovery was strong. The US economy will possibly rise in a V-shaped recovery. However, Nouriel Roubini, a New York University professor who had accurately predicted the current crisis, said the American economy would rebound in a U-shaped recovery. He did not exclude the possibility of a second recession.

Kahn of the IMF said in an exclusive interview with Xinhua that the US economy would recover first followed by other economies. But Justin Lin Yifu, World Bank chief economist and senior vice president, said the Chinese economy has already rebounded first and the emerging economies are becoming the locomotive that tows the global economic recovery.

Analysts said the emerging markets still have plenty of room to grow.

Jonathan Anderson, the UBS' chief economist for emerging markets, estimated that the average increase of the developed economies in the coming five years will only reach between 1.5 and 2 percent. But the growth for emerging economies will be between 5and 6 percent and Asia possibly with 7 percent, Anderson said.

(Xinhua News Agency September 16, 2009)