Crisis may help create new economic-growth model

The conference, scheduled for September 10-12, will take place against the backdrop of the world's worst financial and economic crisis since the 1930s as the US and other major industrialised economies entered recession this year.

The financial crisis has spread to almost every region and industry, triggering a crisis of confidence in the overall global economy.

Overcoming this will require developing and implementing international, regional and national strategies to generate a new wave of economic growth, according to the WEF.

The Switzerland-based WEF will invite a total of 1,500 influential stakeholders to the summit to build the public-private partnerships necessary to transform and revitalise the global economy in a sustainable manner.

The agenda will also support the Group of 20 largest economies and their efforts to create growth incentives supporting a new wave of innovation.

This will focus on turning challenges into opportunities whereby efforts to address global risks such as climate change will also be tackled to catalyse the creation of new jobs and technologies in a post-carbon economy of the future.

Meanwhile, the current economic crisis, marked by sharp demand falls in the US and other major markets, has prompted Asian policy-makers to attempt to rebalance their economic-growth models.

Dr Somkid Jatusripitak, a former Thai deputy premier in charge of economic affairs, said earlier that a new economic-development model would emerge as a result of the current global crisis.

Thailand and other export-dependent countries can no longer depend on foreign investment, tourism and exports as engines of growth.

In the new model, Somkid envisaged the rise of domestic markets which would have to play a bigger role in driving economic growth in Thailand and elsewhere.

According to a report from the Royal Bank of Scotland, there are limits and dangers faced by non-Japan Asian economies' excessive reliance on exports as an engine of growth.

The report shares the opinion that policy-makers will likely opt for a new growth strategy whose lynch pins will be higher domestic demand and lower savings.

Efforts to restore export growth to the pre-crisis level by competitive devaluation, though possible in the short run, will ultimately prove futile and may even be met with resistance from trading partners, the report says.

To rebalance growth, Asian economies, except Japan, will require higher public spending, financial-sector reform and exchange-rate flexibility.

The transition to this rebalancing will, however, be a medium-term challenge, with financial-market responses far-reaching in terms of currency appreciation, while equities and bond markets should pull away from the US.

The report asserts that the current growth model is borne out by the extreme shifts that have taken place in its growth composition since the 1997-8 crisis.

Specifically, the share of consumption and investment has declined in most countries while the share of net exports or the current account surplus has risen. For example, the share of consumption has declined in all economies except the Philippines, where it has remained at around 77 per cent of GDP.

Such a decline has been particularly large in China and India.

As for investment, its share of GDP has declined in all countries except China and India. The declines are sizeable, amounting to as much as 26 per cent of GDP in Malaysia and 10 per cent and 20 per cent in South Korea and Thailand respectively.

In China, the increase in investment has not offset the decline in |consumption and the rise in net exports. For the region as a whole, |savings rates are also well in excess of investment: this has been the basis of what US Federal Reserve Chairman Ben Bernanke calls the "savings glut".