Economist predicts 'true recovery to take six to 10 years'
As in a medical drama, where relatives of the patient ask for straight talk, most people want realistic assessments of the global economy's health, not strained optimism or hopeful predictions that don't accord with the facts.
With the mainland - still 'the world's factory' after all - reporting an April drop in exports of 22.6 per cent, and unemployment in many markets still on the rise, there is no point thinking that anything but a long, hard slog to recovery lies ahead.
'We are dealing with an enormous downturn, and while you may see some sort of recovery this year, I would say this is a false dawn. There is a severe headwind for the economy and capital markets will still be tight,' said Daniel Hofmann, group chief economist for Zurich Insurance.
His conclusion is that the global crisis can, without exaggeration, be described as a 'once-in-a-century' event.
Mr Hofmann noted that total returns for United States markets last year were the worst since 1911, Germany was heading for its worst recession in the post-war period, and falling asset values would lead to more losses and write-downs.
'There will be some bumping along the bottom before we see a true recovery but, with a severe slowdown in economic activity, that could take six to 10 years.'
He said Asia was best placed to absorb the shocks which included a possible prolonged slowdown in exports and tighter capital caused by the credit crunch, but the region was in generally good fiscal health, with inflation under control and relatively robust governance structures.
'Asia is export-driven and has seen some very dramatic declines,' Mr Hofmann said.
'But there are huge foreign exchange reserves that provide a buffer and insurance. The region is still very dependent on capital flows, as trade and development projects need to be financed, but if you ask yourself who must come out ahead in this crisis, the answer is Asia.'
Looking at the mainland, he noted the central government's biggest challenge was to rebalance the economic structure to reduce the emphasis on exports and drive up domestic consumption. Logically, that means allowing further appreciation of the yuan and gradually moving towards a more autonomous monetary policy.
This is fundamental to the country's long-term interests and goes together with the need to press for stronger representation in international bodies such as the IMF.
'China has so much invested in the US and is so much at the mercy of the economic well-being of the [United] States that this is a double-edged sword,' Mr Hofmann said. 'You can feel very powerful with US$2 trillion in reserves, but those reserves can depreciate very quickly, so basically you suffer the same fate as other investors with funds in the stock market.'
He added that mainland policymakers - and elsewhere - should never think it was possible to deal with economic risks in isolation.
They are always just one part of the larger picture of global risks that involves an interplay of environmental, geopolitical and societal factors.
In work done for a report for the World Economic Forum, Mr Hofmann and his colleagues identified 36 separate risks, ranging from earthquakes and terrorism to infectious diseases and corruption, which could affect national economies.
His concern is that governments are still not doing enough to mitigate these larger risks and minimise their effects.
'One of the bigger problems we face today is being too focused on short-term economic risks and fighting them,' he said. 'But if we do not tackle the environment and other challenges with dedicated resources, we face the risk that they will come back to bite us.'
