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By Tim Weber
Business editor, BBC News website, in Davos
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Nouriel Roubini suggested it was business as usual at banks
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The global economy is set for a slow recovery, according to experts at the World Economic Forum in Davos. Western nations face a period of jobless growth, but it was widely agreed that emerging markets would experience the swiftest recovery. But Nouriel Roubini - one of the few economists who accurately forecast the credit crunch - predicted that another recession is unlikely. Few agreed about whether the danger is too much or too little reform. Investors, meanwhile, predict the current downturn presents excellent opportunities. Everywhere I go in Davos, I hear heated discussions about how to reform financial industries around the world. This panel was not different. Assessing the state of the global economy is traditionally the first session at the WEF in Davos, but while all panellists agreed that the situation was still bad, there was little consensus on how the crisis would play out. 'Obscene bonuses' Mr Roubini - introduced as the "Kassandra of Davos" - forecast a U-shaped economy, with a drawn-out downturn before an eventual recovery.
He also waded in on the ongoing row over bonuses, warning that banks were returning to business as normal, "already we are seeing obscene bonuses again". "We have to have more restrictions on the financial sector to avoid the next bust." He predicted advanced economies would have a good start to 2010, but would suffer a slowdown in the second half of the year as governments were phasing out their stimulus programmes. He delivered a staccato of economic problems weighing down the recovery. The financial sector had socialised its losses, which resulted in huge public debt and fiscal deficits. Consumers were spending less and saving more, also weighing on the recovery. Credit markets were "still very crunched", he said, in fact credit volumes were shrinking. Recovery debate However, Mr Roubini said there was just a small chance of a "double-dip" recession, where the current recovery would quickly make way for yet another downturn. David Nally, chairman of consulting firm PricewaterhouseCoopers, agreed and pointed out that looking at job creation, this was "not a very robust recovery." But Heizo Takenaka of Keio University, and a former Japanese economics minister, was less confident that China and other emerging markets could keep driving global recovery. Government spending in China was the largest "fiscal expansion in history" he said, and simply not sustainable at current pace. Once government spending slowed down, the world would be set for the second dip of this recession, he argued. 'Heart attack' But economists do not have a track record of always getting it right, warned David Rubenstein, co-founder of private equity group Carlyle. "Just like generals fight the last war, economists fight the last recession," he said and joked that that he would not ask Mr Roubini to accompany him on a roadshow to raise funds from investors. "We've gone through a bit of a heart attack," he said, but "heart attacks are not that fatal anymore." Yes, many of the big investment deals done between 2004 to 2007 were in bad shape, but none had filed for bankruptcy and some would deliver spectacular returns. Now, Mr Rubenstein argued, was one of the best times to invest, and the deals done in 2009 would turn out to be the best investments of decade as people "got extraordinarily good bargains". The reform agenda, said Raghuram Rajan of the University of Chicago School of Business, was driven by populism right now. And while it was correct that banks should not be too big to fail, we should also worry about there being too many small banks that could fail.
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Just like generals fight the last war, economists fight the last recession
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