Former chief economist of IMF Kenneth Rogoff believes that recession could be borderline or a deeper one, depending on the many factors that are playing out in the geopolitical arena. He told Shereen Bhan of CNBC TV18 at Davos 2023 that global warming, curiously, has worked in favour by keeping energy prices down in North America and Europe while China has decided to get rid of COVID restrictions, and both of these may help boost global growth in the short term.
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Rogoff, who is a professor of economics at Harvard University, however noted that there are different underlying concerns that indicate otherwise — like the Russia-Ukraine war, the rising or high global interest rates and the fact that China may not be the growth engine it was.
China may have reached ....
Expanding on China, he said the country has come to the end of the line on its growth model.
“I think they (China) have come to the end of the line on their growth model. Their growth model had featured tonnes of construction, roads, bridges, apartment buildings, offices. But it is way overbuilt, particularly in the smaller cities. No matter what the government does to the real estate sector, that day is past,” he said.
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“Secondly, centralisation of power can’t be good for growth. It was already centralised, and not only has President Xi Jinping centralised it more, he has also gotten rid of good technocrats,” he said.
Amid the uncertainties in the world, Russia and Ukraine are the biggest wild card, he said.
Rogoff also said there is a huge opportunity for India in the reshaping of global economics away from China. “Countries are not just looking at what is happening in China now but also at what is happening in Russia. Companies may not be looking to pull out of China, but they are looking to expand elsewhere,” he said, adding that due to this, all South Asian countries are benefitting, including India.
Second cold war?
But amid this ray of hope, there could be problems as well due to the increasingly insular and protectionist policies of governments across the world as against the need for global cooperation, a call made by the World Economic Forum.
In this regard, Rogoff said: “It seems like we have entered a second cold war, you never know. Maybe Putin will die tomorrow, and some charismatic, democratic leader will take over Russia and maybe China will decide that they had gone too far and open up (their economy), but there are so many things pointing to more fragmentation.”
He specifically noted that defence spending has been rising all over the world. And while the whole world benefitted immensely from interest rates being super low, he warned that you shouldn’t think that it will last forever.
Even after the governments have achieved their inflation targets, the interest rates are not going to come down to as much as they were before, he said.
Watch the whole video to know more