Thursday 27 January 2011

The world economy: Has the optimism returned? | gideon rachman's blog – FT.com

I have, as usual, succeeded in spending a day in Davos without attending a single public session. But I have managed to speak to several interesting people about the world economy.

My sense is that optimism has returned. Even Dr Doom – Nouriel Roubini – has become notably less pessimistic. China and India are here in force and radiating the good will of those whose time has come. There seems to be little doubt that they will continue to grow very rapidly. The mood about the US has also markedly improved. Some informed observers are even talking about 3.5 per cent growth this year. Few seem to believe that the federal government will have any serious difficulty selling its debt. Even the panic over the eurozone seems to have abated. People seem to believe that a default will be avoided this year.

At the same time, it is not hard to find alternative perspectives. One emphasises the sheer uncertainty. Another stresses the potential for an unexpected eurozone default, perhaps by Ireland, after its election. That could lead to a panic in the wholesale markets, on which European banks depend. Yet another worry is inflation and the rising public debt in high-income countries.

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