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Emerging Markets To Drive World Economy - Yueh

linda yueh imh limassol forumEmerging markets will drive global economic growth in the coming years amid stagnation in the EU and other developed markets, said economist and Bloomberg correspondent Dr. Linda Yueh speaking at IMH's 2nd Limassol Economic Forum.

While Europe languishes in the throes of a sovereign debt crisis that has brought Greece to a standstill amid strikes over austerity measures, China, India and Indonesia are growing fast, she said. But downside risks should be considered, said Yueh speaking to a packed room full of CEOs and business leaders at the Four Seasons.

Emerging markets will drive the world economy but they will be more volatile due to factors like political instability, she said, citing phenomena such as the Arab Spring. There may be banking and other financial crises due to poor regulatory oversight in these markets, which may suffer from inflation and overstretched budgets from the last global recession.

For the time being, there is stagnation and a bear market in Europe, says Yueh, in contrast to countries like China and India which do not have a recession.

The euro is in urgent need of structural reform that will support it through uncertainty and economic crises. One tool that has possibly been overused is printing more money and pumping it into the banking system, but central banks find it hard to predict how much they will need and whether this strategy will turn out to be a bottomless pit. Another possibility is suggested by Jean-Claude Trichet - to create an EU Finance Ministry for stronger regulation of Eurozone markets. This would need political will however, since it would be regulating sovereign governments which could object to Brussels telling them how to run their finances.

Europe's advantages are its diversity and size but stronger political leadership is needed to reform the eurozone and prevent sovereign debt crises in the future, said Yueh. If Europe manages to reduce structural debt and even out uncertainty in financial markets, growth prospects are bright, she said.

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