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Davos meet echoes tough times for EMs
Tue, 28 Jan Pre-Open

The 2014 World Economic Forum meeting in Davos came to an end last week. It is an annual gathering where top honchos from across the world discuss economy and business. The general consensus in this year's meeting was that while growth was returning to the developed world, thanks to money printing exercise of central banks, the unemployment problem was getting chronic. Also, most echoed views that political uncertainty in emerging markets would make the growth recovery process more challenging.

But what may come in as a major surprise for many - Most honchos believed that the developed markets including US are likely to outperform the emerging markets in the year ahead. The very fact that Fed has decided to taper indicates that the US economy is recovering. Tapering would also reduce liquidity inflow into emerging markets. Recovery in US and reduced money flow into emerging markets may lead to outperformance by developed markets. Also, since most emerging markets are facing political uncertainty and policy paralysis, corporate honchos are not upbeat about their performance.

However, this does not indicate that the recovery road for the developed world will be smooth. A part of this recovery is due to the loose monetary policies of the West. And such policies can fuel hyperinflation if sustained for long. Unemployment is another issue which the West has to address for the growth chart to tread northwards.

It won't be easy to eradicate unemployment considering the fact that business confidence is low amongst corporates. Lack of necessary skill sets is another problem which the West is currently facing. So, say even if the business confidence improves in the future (once corporates increase their spending), the unemployment situation will continue to persist as most of the workforce may lack necessary skill sets to get jobs. Improving the education standards and having skill development programs in place is the way through which the unemployment situation can be improved.

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