Things are looking up – but problems remain

Leading economists believe the world economy is beginning to put the worst of its problems behind it, but they also believe that serious difficulties remain which could yet lead to renewed turmoil.

A series of influential figures told the World Economic Forum in Davos yesterday that, despite continuing uncertainties, the global economy looked healthier than it did a year ago. They were led by Nouriel Roubini, the American economics professor who, since the financial crisis of 2008, has consistently been one of the most pessimistic commentators. Mr Roubini said it was now possible to look at the recovery with a "half-glass full" mentality, because there were upsides to balance against the downsides.

"The recovery is stronger in the emerging markets, where growth is accelerating, but the risk of a double-dip recession in advanced economies is now smaller too," he said.

Zhu Min, a special adviser to the International Monetary Fund, added: "In emerging markets growth is still strong and, while there has been a bit of a slowdown, that is healthy." Mr Zhu said he expected to see the US perform strongly again this year too.

The economists were joined in their optimism by Sir Martin Sorrell, the chief executive of the British advertising giant WPP, who said his company had been surprised by the strength of its trading over the past 12 months.

However, nervousness persists, particularly over the size of the US budget deficit, which Sir Martin said was "the gorilla in the room" for the world economy – an impression reinforced by President Obama's failure to confront the problem in his State of the Union address on Tuesday.

Mr Roubini also warned of a series of risks to the recovery, including the serious danger of a renewed outbreak of the eurozone crisis, the likelihood of only "anaemic growth" in most advanced economies, and the rising cost of commodities including food and fuel.

Food prices in particular are causing global concern, and a report from the management consultant McKinsey warned yesterday that there could be social and political unrest in China unless inflation began to ease.

Mr Roubini singled out the UK as a nation facing particular problems, warning that Tuesday's disappointing fourth-quarter GDP figures suggested that "the risk of a double dip and a long-term stagnation is not gone for ever".