Beijing gives verdict on rest of world economies, and the forecast is grim

PUBLISHED : Sunday, 17 April, 2011, 12:00am
UPDATED : Sunday, 17 April, 2011, 12:00am


Europe has the worst economy in a world full of bleak markets. That was the verdict from China at the Boao Forum for Asia in Hainan yesterday.

However, its in-depth analysis of markets beyond the mainland also suggested Europe was still a good place to invest.

The study on the outlook of world economies in 2012 was carried out by China Investment Corp, the mainland's sovereign investment fund, to serve as a guide on how to spend its US$300 billion.

Chairman Lou Jiwei said: 'World economies are looking grim next year, with Europe the grimmest- internal demand is weak, banks are in need of recapitalisation and regional gaps are widening.

'But our negative forecast on the performance of the European economy does not mean our investment will stop. Quite the contrary, as the money we have invested in the EU in the last few years has generated quite good returns.

'We believe the infrastructure in EU is better than the United States, and we will continue to invest.'

Europe's biggest problem, Lou said, was sluggish internal demand.

He added world economic growth was likely to slow down in December and Europe was in line to take the first and the worst hit.

On a global level, Lou said: 'We are relatively optimistic about 2011, but for 2012, it is possible there will be a big drop in economic growth or even recession.'

Regarding Japan, the markets were losing confidence in the country's ability to recover following the earthquake and tsunami and the ongoing struggle to contain the damage at the Fukushima nuclear plant.

Meanwhile, in the United States, the world's biggest economy, President Obama had promised Congress a tight budget and would be unable to try to stimulate the economy with fiscal policies any longer. The property market there also remained sluggish.

'We don't see any encouraging signs of change in the US yet. We don't expect them to contribute much to global growth,' he said.

The unrest in North Africa and the Middle East would be likely to disrupt oil supplies, heaping more misery on the global economy, Lou added.

The European Union also had to contend with the sovereign debt crisis in some euro-zone countries, such as Ireland and Portugal, and there was no sign of an end to that soon.

'Debt crisis is a shadow over the euro's future,' Lou said.

Spanish Prime Minister Jose Luis Rodriguez Zapatero was more upbeat in Hainan on Thursday when he said that Spain would recapitalise its saving banks thanks to promised continued investment from China and Singapore.