Entering 2011, the world economy -- which has expanded about five per cent this year -- seems to be caught between the worlds of austerity and stimulus. On either side of the Atlantic, efforts to contain fiscal deficit and bolster economic growth are in different trajectories. While the crisis-hit Europe is clamouring for severe tightening measures, the United States continues to print more dollars.
"Uncertainty and struggling to regain itself in the aftermath of the global economic slowdown has been the hallmark of most economies during 2010," global consultancy Deloitte India's Principal Economist Shanto Ghosh told PTI.
In the midst of the ravaging crisis and sweeping changes, power has shifted from once-unshakable developed world to rapidly growing nations such as India and China. In a testimony to their rising economic clout, India and China are all set to get more voting power at the International Monetary Fund (IMF). The G-20 grouping has emerged as the most influential voice, with increased focus on nations such as India and China, whose consuming power is leading the global recovery.
Meanwhile, the word 'stimulus' continues to remain the key for the world's largest economy. Apart from continuing with near-zero interest rate regime for nearly three years, the US is now exploring newer ways to stimulate the still-sluggish recovery.
Federal Reserve chief Ben Bernanke has hinted at quantitative easing measures, after unveiling a plan to buy USD 600 billion-worth government securities. The Barack Obama has announced fresh tax cuts and earlier this year, initiated steps to discourage outsourcing.
The justification for these steps and more, lies in numbers. American economy, which expanded 2.5 per cent in September quarter, is threatened by high jobless rate that stood at 9.8 per cent in November.
With Uncle Sam pumping more dollars to rejuvenate the over USD 14 trillion-economy and create more jobs, the spillovers are nightmarish. Cheap greenback has fuelled excessive fund flows into emerging nations including India and China, which in turn has stoked concerns of overheating and asset bubbles.
Talking of currencies, both China and the US are attracting criticism for relatively low value of their respective currencies. Further, euro -- that unites 16 European nations -- is even blamed for limited choices in tackling the debt crisis.
Surviving on multi-billion dollar alms from the European Union and the IMF, euro zone members Greece and Ireland can only opt for austerity, as they are tied down by the common currency.
Many experts even believe that euro is not the right answer for weak and not-so-prosperous European nations, as was evident in the case of Ireland. Greece was assured of a bailout package of 110 billion euros while Ireland's is pegged at 85 billion euros.
Moreover, the vastly-different economic scenes in the US, Europe and emerging Asian nations has made the progress at stalled-WTO negotiations more difficult. Opening up their respective markets under the World Trade Organisation norms, is not an encouraging proposition for many developed nations.
On the global banking front, countries have woken up to the necessity of having sound regulations as reflected in the proposed Basel III norms, that demands lenders to keep more money in reserves.
"India and China are well poised to benefit in the short run from their relatively better growth prospects. "However, this will also increase the downside risk of a slowdown in these economies when capital reverses its flows from these countries as the rest of the world recovers," Shanto Ghosh said.
Even as clouds of economic uncertainty gather, the silver lining of better global growth prospects remains for 2011.