Summary of speech

Macroeconomic Realities

The world economy is now recovering from the deep recession that followed the crisis that befell the financial markets at the end of 2008. Economic development has, however, been uneven. Economic growth in China – which slowed only slightly during the crisis – was one of the first to speed up, supported by considerable expansionary measures. This was broadly reflected in other developing economies in Asia and elsewhere in the world. The upswing in the United States and Japan started a little later, in 2009, while the euro area had to wait until spring 2010 to experience a turnaround. Subsequently, China, the United States as well as Japan have been showing signs of an evening up in their pace of recovery.

Growth is expected to continue unevenly. In emerging economies, rapid growth is fostered not only by population structure, but particularly also by their position as technological catch-up countries: It is faster to adopt existing high-level technology than develop it themselves. Additionally, the financial crisis is seen slowing growth more in developed than in emerging economies in the coming years.

The reason for which being that the financial crisis had a significantly more pronounced effect on developed than emerging economies. Households have already increased their savings in many countries where leveraging was increasing rapidly before the crisis. Returning indebtedness back to more sustainable levels over the long run is expected to be a protracted process, in many of these countries. This probably will slow down economic growth in these countries for several years.

One of the more serious consequences of the crisis has been how rapidly governments have become indebted. Expansionary measures have increased public deficits in, for example, some euro area countries extremely rapidly. These debts only serve to exacerbate future funding pressures. It is possible to survive these debt burdens only under conditions of adequate growth, but structural reforms will also be imperative.

Several euro area countries are in a situation where the share of working-age population is starting to shrink. Consequently, population growth no longer supports economic growth; rather it poses a threat in the form of a reduction in hours worked. This leads to a situation where, from the debt servicing point of view, productivity improvements will remain the sole means of achieving the necessary economic growth. In order to sustain high-level of wellbeing, the speeding up of productivity growth is a great challenge and will require both public support as well considerable efforts from the private sector.