The much anticipated early recovery of the Middle East and many other Asian economies including China and India by the end of this year are likely to inundate these markets with overseas investments. The revival of these economies will attract many companies from Europe and North America with cash reserves to invest in these countries for faster gains.
The likely relaxation of norms for foreign funds by the revived economies to sustain growth may delay the probability of getting out of the current economic mess for rest of the world. Though there are positive indicators of a global economic recovery with the world stock markets showing signs of confidence for the past six weeks, but the potential economic ramifications will put pressure on most of the developed nations.
Angel Gurria, secretary-general of the OECD acknowledged that this year would remain extremely difficult for the world economy, with 30 developed nations suffering a combined contraction of 4.3 percent. Unless these countries bring out financial regulations to stop the outflow of funds, many companies will move their funds to locations where they can ensure better profitability.
Top officials and leaders are downplaying the recovery signs to avoid the markets to grow unrealistically and fall once again to dip the confidence which may push them to deeper crisis. In a major economic speech at Georgetown University last week, the US President Barack Obama said the country was still not out of the woods. Similarly, European Central Bank President Jean-Claude Trichet stated “With respect to 2009, let’s be prepared for having a very difficult year,” Trichet told Japanese newspaper Mainichi.
Even Gurria’s recent cautious note of comprehensive global economic recovery by the end of 2010 would be a far cry from reality if an unexpected outflow of funds to another region takes place. Without any viable financial regulations in place by the North American and the European nations, the world will see a lopsided economic recovery and growth confined to a particular region or countries.