UBS's Donovan Sees Slow World Economic Rebound as `War for Capital' Looms
The global economic recovery is the “worst in 70 years” as Europe’s debt problems persist and the U.S. struggles with low growth rates, said Paul Donovan, deputy head of global economics at UBS AG.
While the rebound is sluggish, “we are a very, very, very long way away from a double-dip scenario,” Donovan said at a conference in Moscow today. “The biggest challenge the global economy faces for the next 10 to 15 years is a war for capital.”
Russia needs long-term investment instead of “hot money” to boost productivity, which is “appallingly low compared with the rest of the world,” Donovan said. China will also seek investment to fuel growth. This demand for capital is set to come on the back of tighter banking regulations, including Basel III requirements, which Donovan called “disastrous.”
New rules on higher capital requirements, part of the so- called Basel III reforms aimed at making banks more resilient to future crises, are set to be completed this weekend, according to European Central Bank Governing Council member Axel Weber. Banks worldwide oppose the changes, arguing that the rules will force them to cut lending because they won’t be able to raise enough capital to comply.
U.S. Jobless Rate
The global recovery may weaken as European governments cut spending to push down budget deficits that soared during the recession and signs appeared that the U.S. recovery is waning. Federal Reserve Chairman Ben Bernanke said on Aug. 10 that the American recovery is likely to be “more moderate” than previously forecast.
The U.S. jobless rate may approach 10 percent in coming months as the economy fails to grow enough to employ more people, according to economists surveyed by Bloomberg.
Foreign direct investment into Russia, the world’s biggest energy exporter, fell an annual 11 percent to $5.4 billion in the first half, according to the Federal Statistics Service. Overall foreign investment, including credits and flows into the securities markets, slid 5.5 percent to $30.4 billion in the period.
The Economy Ministry cut this year’s capital investment growth forecast last month to 2.5 percent from an earlier estimate of 2.9 percent. Capital investment rose 0.8 percent in July, the slowest pace since February, showing a “fragile” recovery in investment, according to Anna Zadornova, a London- based economist at Goldman Sachs Group Inc.
“Russia was and remains very dependent on energy,” Garegin Tosunyan, president of the Russian Association of Banks, told a banking conference in Nizhny Novgorod last month. Russian revenue from energy sales, including oil and gas, account for 72 percent of total exports.
“This dependence makes us hostage” to global shocks, Tosunyan said.
The Russian government seeks to have a “stable, predictable policy without big volatility or big surprises for the markets,” Deputy Finance Minister Dmitry Pankin said at a conference in Moscow today. Stability will stimulate long-term investment, he said.