Panelists say China transition challenge is manageable
Blood-letting in global markets is dominating corridor talk as business leaders and policymakers meet in Davos, although so far the view is that it doesn't signal a financial crisis. As the World Economic Forum's annual meeting in Switzerland wrestled with topics ranging from the impact of robots on jobs to gender and wealth inequality, the MSCI World equity index .MIWD00000PUS fell to its lowest level since July 2013. If sustained, the 9.9 percent fall in the index in January would be the worst monthly loss since 2009, towards the end of the global financial crisis.
"I don't believe this is a repeat of 2008...that is not to say that there are not some very significant risks impacting the market - not least of which is China's slowing growth," John Veihmeyer, Global Chairman of accounting group KPMG, said in the Reuters Global Markets Forum on Wednesday. The International Monetary Fund (IMF) cut its global growth forecasts for the third time in less than a year to 3.4 percent on Tuesday, as new figures showed that the Chinese economy grew at its slowest rate in a quarter of a century in 2015.
While China's rapid slowdown, combined with a dramatic fall in the price of oil, has spooked investors around the globe, European Economics Commissioner Pierre Moscovici told Reuters Television he too did not believe there would be any return to an international financial crisis. "I don't feel that the financial crisis is coming back... but there are downsides that we need to address," he said. "There are worries...especially about China which is undergoing a transition which is difficult and uncertain."
However, some in Davos were less confident about the outlook for 2016 after the rocky start to the year.
"Market turmoil can be a harbinger that something is wrong and even if it is irrational, can have real consequences. What is going on now is a message that the excessive optimism that has been spreading around is wrong," Nobel Prize-winning U.S. economist Joseph Stiglitz told Reuters.
While Moscovici said he was confident that the world's central banks have the ammunition to revive the global economy after years of record low interest rates and quantitative easing, Stiglitz was not convinced. "The Fed (U.S. Federal Reserve) doesn't get it. The Fed raises interest rates, Brazil raises interest rates in a world in which things are not good. Central banks are often more out of tune with reality than markets," Stiglitz said, adding he saw no chance of any intervention at a G7 or G20 level. Veteran British businessman Roger Carr, who is chairman of British defense group BAE Systems, said the future was not looking bright.
Meanwhile, Two of China's delegates to the annual World Economic Forum in Davos heard calls for clearer communication on their nation's economic policies in the wake of volatility in mainland stocks and the currency.
"There is a communication issue," International Monetary Fund Managing Director Christine Lagarde said at a panel hosted by Bloomberg in the Swiss ski resort, referring to confusion about how China is managing a shift toward a more market-set exchange rate. "Better and more communication would certainly serve that transition better." Gary Cohn, president of Goldman Sachs Group Inc., echoed that "the communication is really what's important here," and urged Chinese policy makers to "stick with" their transition toward a greater role for markets. "We all want clarity," he said. "You're right we should do a better job, and we are learning," said Fang Xinghai, vice chairman of the China Securities Regulatory Commission. "I'm here today to communicate," he said, spurring chuckles from the audience. "Our system isn't structured in a way that's able to communicate seamlessly with the market."