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Warning issued over global economy risks

By Wei Tian | China Daily | Updated: 2012-12-25 07:48

A sluggish global economy will pose challenges and policies must be tailored to address the risks, a top think tank said on Monday.

"The global economy will experience low growth, at best, over the next few years," said Zhang Yuyan, director of the Institute of World Economy and Politics at the Chinese Academy of Social Sciences.

The academy's latest report, The World Economy Analysis and Forecast, put global growth for 2013 at 3.5 percent.

The forecast by major international institutions, such as the World Bank, International Monetary Fund, and the United Nations, put global growth rates between 3.6 and 4 percent in 2013.

Zhang said the forecast was due to concerns over the "fiscal cliff" in the US, the eurozone crisis and growing trade protectionism.

The fiscal cliff refers to tax increases and spending cuts that will automatically kick in at the beginning of 2013 if a budget agreement is not reached.

"If the US falls off the fiscal cliff it will enter a full recession and pose a major threat to the global economy.

"Even if it successfully avoids the cliff, it will adopt further easing measures that will lead to excessive global liquidity, which will push up inflation in other countries," Zhang said.

The academy report forecast that the US economy will rise slightly from 2.4 percent in 2012 to 2.5 percent in 2013.

Zhang said most developed economies will face the challenge of "Japanization", high debt and an aging population.

This could result in growing protectionism, he said, and China may be its major victim.

The report also focused on the shrinking US trade deficit. It has fallen from 6 percent of the GDP in 2006 to an estimated 3.1 percent in 2012.

The trade surplus in China may be lowered to 2.3 percent of its GDP this year from 10.1 percent in 2007. Sun Jie, a senior research fellow with the academy, said the trend for both countries will continue over the next year.

Fan Jianping, deputy director of economic forecast at the State Information Center, another government think tank, wrote in a report that China faces three possible scenarios.

In the basic scenario, Fan said, growth will be 8 percent in 2013 if issues like the eurozone crisis and fiscal cliff are properly handled.

Growth, in the second scenario, may even reach 9 percent if the global trade environment improves.

The worst scenario would involve the US falling off the cliff and the eurozone crisis remaining unsolved.

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