Another bright spot on the global stage is India, with 7.5% expected growth. However, people are still living in poverty, said Arun Jaitley, Minister of Finance, Corporate Affairs and Information and Broadcasting of India. “We need a high growth rate sustained over a long period of time,” he said. Oil prices have been helpful in sustaining the country’s growth, but shrinkage of exports is a concern. The government has a list of high-priority reforms, including tax reform – including a lower goods and services tax – and bankruptcy law
One main reform remains “a work in progress”, which is ease of doing business. Jaitley pointed to India’s culture of innovation and said the government plans to support start-ups with tax breaks, funding and a no-interference policy.
Japan’s economy grew 1% to 1.5% in the current fiscal year. The corporate sector reported high-level profits, the labour market is becoming tighter and unemployment is at just 3%, according to Haruhiko Kuroda, Governor of the Bank of Japan. The inflation rate remains at zero, but the economy has been making a moderate recovery. “We will expect this growth to continue for some time and inflation could improve substantially once oil prices start to bottom out,” he said.
Kuroda said that monetary policy divergence among major economies simply reflects divergent financial situations.
The world has changed a lot since the financial crisis in 2008, said Tidjane Thiam, Chief Executive Officer, Credit Suisse, Switzerland, a Co-Chair of the World Economic Forum Annual Meeting 2016. “There is no worry about contagion risk with banks,” he said. “This is a huge tick for the central banking system. Look at our total capital; we will be holding $4 trillion. Even if there is a good degree of commotion, the system can withstand it. We can look forward to a normalized environment.”
The worst start to any year on the record of financial markets three weeks into 2016 was driven by several factors, including fears about a hard landing for China. “The market is very worried about China,” Thiam said. “We believe China will have a soft landing.”
There was consensus that the markets had “overreacted” to China. Lagarde said the transition of the Chinese economy, moving from industry to services, from exports to the domestic market, and from investment to consumption is a massive undertaking. “We forecast China to be at 6.8% growth in 2015,” she said. “For those who pretend to be surprised, it was expected … this is a good way to facilitate the transition.”
Martin Wolf, Associate Editor and Chief Economics Commentator, Financial Times, United Kingdom, commented: “The basic lesson is not to be worried about markets; we have some big issues, but the United States, Europe and China look okay and they are the core of the world economic system. So, it should be alright – cheer up.”
Over 2,500 leaders from business, government, international organizations, civil society, academia, media and the arts are participating in the 46th World Economic Forum Annual Meeting in Davos-Klosters, Switzerland, on 20-23 January.