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Economic elite in Davos advocates bigger role for emerging markets

Some corporate leaders at the Davos forum question the role the G20 can play in making the global financial system crisis-proof. Emerging markets may need to have a bigger say in the decision-making process.

Nouriel Roubini

Economist Roubini is cautiously optimistic

Corporate leaders attending the Davos forum have voiced cautious optimism about the global recovery, but the role the G20 will play in making the global financial system crisis-proof is less clear.

If discussions among the economic elite are anything to go by, emerging markets need to have a bigger say in the decision-making process.

Global glass half full

Nouriel Roubini is one of the few economists who predicted the credit crunch and has a reputation for being a critical pessimist. But as he took to the stage at the World Economic Forum, he surprised some delegates by saying the global glass isn't just half-empty – it's also half-full.

"There is a global economic recovery, both in advanced economies and emerging markets. It's stronger in emerging markets - that's the first positive - and it's ongoing," Roubini said.

The second positive, he said, is that the risk of an outright double-dip recession in advanced economies and the risk of outright deflation are lower than they were last year. And, finally, the balance sheets of leading corporations in the United States and other advanced economies like those in Europe are strong.

Azim Premji

Premji's Wipro benefits from the rise of emerging markets

The main theme at this year's meeting in Davos is the so-called ‘new reality' - the shift of political and economic power from Western industrialized economies to emerging powers in the east and the south.

The chairman of Indian IT giant Wipro, Azim Premji, said that within five years, emerging markets will have more households with disposable incomes over $10,000 than the United States and Europe combined.

Shifting sands of economic influence

"This is also putting a new trust on multinational corporations of getting emerging countries like India in addition to China much more into focus, because that's where they see the growth coming from," Premji said.

Civet cat

The new buzzword CIVETS is not to be confused with the civet cat

The shifting sands of economic influence mean that financial and political decision-makers now need to rethink their world view. That's according to Sir Martin Sorrell, chief executive of London-based advertising giant WPP.

"I think we have to get out of the lexicon the words 'developing' and 'emerging' " Sorrell said. "China is a 5 trillion dollar economy – against 15 trillion, it's true, for the US, out of 65 trillion or whatever it is worldwide."

It seems the BRIC states - Brazil, Russia, India and China - are becoming old hat. The new buzzword on the lips of the movers and shakers in Davos is: CIVETS.

New economic order

If you're an animal lover, you may know the civet as a spotted, cat-like mammal that lives in the tropical rainforests of Africa and Asia. But here in chilly Switzerland, CIVETS stands for Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa – nations that some analysts predict will drive the next big wave of growth.

So where does this transition to a new economic order leave advanced economies? Nouriel Roubini sees four major challenges.

G20 members

The Davos forum aims to promote the G20 group as a plaftform for change

One of them is demographics and an aging population reducing potential growth. "It's a problem in Japan; it's a problem in Europe." Roubini said. Two others are the need for structural reforms in advanced economies and the need to invest in education and infrastructure to become more productive and competitive. And, speaking of the fourth challenge, Roubini said: "We have these sovereign debt problems – large budget deficits, rising stocks of public debt that may be clamping on potential growth."

Zhu Min is a special advisor to the International Monetary Fund (IMF) and a former deputy governor of the People's Bank of China. He says economic models need an overhaul as the developing world becomes more prosperous.

Platform for change

"There's one billion people living in advanced economies and three billion people living in the emerging market," Zhu said. "If you ask everyone in the emerging market what is your life model tomorrow, they will say ‘American life' - a big house and a big car and a 4X4 (SUV). But it won't work because we actually don't have the resources to support the whole thing. So the whole world has to work together to figure out a model for tomorrow."

The World Economic Forum aims to promote the G20 group of major economies as a platform for change. But a number of delegates have warned that national leaders appear unable to reach agreement on key issues like taxes, regulation and trade. Their big fear is that international framework will collapse, leaving us with a "G Zero" world.

Author: Sam Edmonds / jrb
Editor: Nicole Goebel

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