Global Economy Set for ‘Divergence’
World Economy

Global Economy Set for ‘Divergence’

The global economy is headed for a period of “divergence,” in which strong nations and corporations perform even better, while weaker ones fall further behind, two high-profile investors predicted at a conference in the Beverly Hills, Calif., on Monday.
In a wide-ranging discussion at the Milken Institute Global Conference, former Pacific Investment Management Co. Chief Executive Mohamed El-Erian said: “We are approaching this T-junction where this period of low growth is either going to hand off to a true recovery...or it can hand off to something much worse, which is not just low growth but financial instability,” MarketWatch reported.
El-Erian, who is now a senior economic adviser to Pimco’s parent company, German insurer Allianz SE, was interviewed by Gerard Baker, the editor in chief of The Wall Street Journal. Also on the panel was Kenneth Griffin, founder and CEO of investment firm Citadel LLC.
Griffin posited that the effect of low GDP growth in some developed nations could be offset by decreases in population, softening the effect on individuals of sluggish overall growth. “Per capita growth could be a very different story,” Griffin said.
Neither man was willing to predict when the Federal Reserve might raise interest rates. “What the Fed would like is for the Journal to stop writing stories about when the first rate hike will happen,” El-Erian quipped.

  Greek Exit Likely
Looking abroad, both men called a Greek exit from the eurozone likely, though they said the effect of such a move would depend on whether it happened in a planned, orderly way, or more haphazardly.
“I don’t see this as a major disaster,” El-Erian said, referring to the possibility of Greece leaving the common European currency. But “it will cause a shock.”
Griffin added the bigger effect could be felt later if another eurozone country such as Spain, Italy or Portugal hits economic trouble and stirs speculation about a second nation leaving the currency.
El-Erian and Griffin praised the recently stepped-up role of activist investors. “I am all in favor of liberalizing access to boardrooms by activists,” Griffin said, arguing it improves corporate governance and transparency, ultimately lowering the cost of capital.
El-Erian offered a more measured endorsement of the phenomenon, which he called “not positive in every single case,” but “an advantage that the US has vis a vis the rest of the world.”
El-Erian, who is also chairman of President Barack Obama’s Global Development Council, at one point mused whether global corporations’ powerful two-decade run of profits and stock prices has been a universal good. “Have we gone too far?” he asked, referring to ballooning corporate profits. “You simply can’t push inequality too far.”

Short URL : http://goo.gl/0lzIox

You can also read ...

Business confidence fell to its lowest level since August 2013 and around 7% of companies expected a contraction.
According to data from the International Monetary Fund in...
China Warned of Ballooning SOEs
Former chief of the World Bank Robert Zoellick cautioned China...
Shrinking unemployment in the US, Japan and the eurozone finally forces companies  to lift wages to retain and attract staff.
Workers in the world's richest countries are getting their...
Saudi Sovereign Fund Secures $11 Billion Loan
Saudi Arabia's sovereign wealth fund said Monday it had...
New Zealand Q2 GDP Growth Picking Up
New Zealand’s economic growth is expected to have accelerated...
Lira Eases Against Dollar
Turkey’s lira weakened against the dollar on Monday as...
By 2025 more than half of all current workplace tasks  will be performed by machines.
Robots will handle 52% of current work tasks by 2025, almost...
Myanmar Businesses Want Lower Taxes
Myanmar businesses are urging the government to lower the...