Posted Sunday, February 1, 2004; 17.27GMT The global economy is finally starting to hum. But will deficits and wild exchange rates kill this recovery? Here's how TIME's experts see 2004. By PETER GUMBEL
Ah, the sweet smell of economic recovery. Stock markets around the globe are surging, corporate spending looks set to rise and optimists are even talking about a return to the golden years of repeated noninflationary growth in the mid-'90s. But how strong is this upturn really — is it sustainable? And what will happen to the recovery's losers?
That may depend on where you stand. When TIME's Board of Economists met during the World Economic Forum in Davos late last month, the perspectives varied according to geography. "The U.S. economy is on steroids," worried Pascal Blanqué, chief economist at the French bank Crédit Agricole. Blanqué fears an America bulking up on dangerous deficits, a lax monetary policy and the falling dollar. "The European economy is on tranquilizers," retorted Laura D'Andrea Tyson, dean of the London Business School and former chair of the Council of Economic Advisers in the Clinton White House. She argues that Europe is both too complacent about its weak growth and strong common currency, and too slow to boost its international competitiveness in response to buoyant American and Chinese competitors.
The face-off between Blanqué and Tyson highlights a sharp divergence in risk perceptions at this year's Board session. There was some common ground: all five economists — respected analysts from around the world — seemed upbeat about the resumption of growth worldwide and relieved that investment is picking up. But while America focuses on how to translate strong productivity gains into more jobs, and obsesses about the emergence of China as a low-cost economic colossus, European Union nations have turned inward. They are preoccupied by the addition of 10 new E.U. members this year, the tussle over a new European Constitution and the collapse of the Growth and Stability Pact that imposed rigid discipline — overly rigid, critics say — on governments to curb deficits. While Europeans seem worried about the impact of the falling dollar on exports, they've yet to take actions to stem it. "Be patient with Europe," pleaded Blanqué. After all, he said, economic-reform efforts in France, Germany and elsewhere are on track, but they will take time to yield tangible results.
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