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Regional Agenda
Digital
Economy
Anders Borg
Chair, World Economic Forums
Global Financial System Initiative
Regular Author
Published
lower than the 4.5% average that preceded the decade before the
Wednesday 23 December 2015
great recession, but it is better than the average over the past five
years.
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policy is still called for and further steps to support growth could be
expected. In the US and Europe alike, investments levels are low,
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absolute terms). In the last few weeks, the inflows have decreased.
Partly that could be due to temporary harsh weather. The fact that
the European Union has made a broader political agreement with
Turkey could also be a factor.
In addition, Daesh will face a stronger counter insurgency efforts
during 2016. If Daesh is pushed back and insecurity reduced in
Syria and Iraq that is likely to further improve the situation. It should
however be pointed out that some 4 million refuges from the conflict
in Syria-Iraq remain in the neighbouring countries (in Turkey 2.2
million, in Lebanon 1.1 million and in Jordan 650,000 people).
The historical pattern has been that it takes a few years before the
refugee numbers normalise after a period of conflict. The intensified
challenge from the Taliban in Afghanistan could also increase the
number of people claiming asylum in Europe (about 100,000 people
have come from Afghanistan to Europe during 2015). The number
of refugees coming to Europe is most likely going to be lower in
2016, but they will remain much higher than the long-term average
for both 2016 and 2017.
The short term economic consequence of the high migration flows
will be somewhat higher GDP growth in Germany and Sweden, due
to a temporary increase in public expenditure. The consequences of
a growing population is positive in the long term, reducing the
demographic pressure of an ageing population. Increased internal
globalisation, to use the term coined by Angela Merkel, is potentially
a more diversified work force and a more creative economy.
In the short term, the task of integrating such alarge number of
people will be a challenge. In Sweden the historical experience has
been that people from Syria have integrated well into the labour
market. However, to be able to integrate a large number of people
coming from a much less developed country (GDP per capita in
Syria was 5000 USD before the conflict, which is slightly more than
10% of the level in Sweden and Germany) will be complicated. To
strengthen integration, countries need to increase labour market
flexibility, boostspending on early education efforts and active
turbulence.
The key factor deciding the degree of turbulence will be inflation in
the US and reforms in China. If inflation is picking up in the US and
the Federal Reserve is perceived to be behind the curve, this could
push US rates higher and reinforce the appreciation of the dollar.
The best guess is that inflation will remain subdued in the US. A
weak consumer recovery and very low resource utilisation is unlikely
to give a demand-driven inflation push. The potential for accelerated
productivity growth out of the broad technology-driven shift that is
now taking place should also keep cost pressure under control.
The traditional models that the Federal Reserve and other central
banks are using to forecast inflation are backward-looking and are
unlikely to capture the fast moving technological development that
we are now seeing. On the back of higher than expected
productivity it is also possible for the unemployment rate to
gradually go lower without pushing a traditional wage and inflation
spiral.
2016 could potentially be a year when the implications of the digital
transformation become a dominant theme. The potential is clearly
there. Many start-up companies have been printing very strong
growth numbers for years, but the macro-economic impact has so
far been on the weaker side because the growth has come from a
low level. Every year this is gradually changing. When more and
more people do their shopping and banking online that will also
mean that the broader implications becomes more pronounced. The
pressure on existing firms to adapt to increased competition is likely
to mean that prices and profit margins are being squeezed.
A more problematic impact could be that employment growth is held
back during the recovery. So far that has not been the case in the
advanced economies. The labour market in the US has been strong,
but that has also been the trend in the United Kingdom, Germany
and the Nordic countries.
Six: Chinas reforms
REUTERS/Lucy Nicholson
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Written by
Anders Borg, Chair, World Economic Forums Global Financial System
Initiative
The views expressed in this article are those of the author alone and not the
World Economic Forum.
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