MercoPress. South Atlantic News Agency

Developed countries recovery “rests on growth in Asia and Latinamerica”

Nathaniel Karp, chief economist of Spanish banking group BBVA

The economic recovery of developed countries, including the United States, rests largely on the growth of developing Asian and Latin American countries, the chief economist of Spanish banking group BBVA said this week.

Economist Nathaniel Karp kicked off the 2009 Global Trade & Transportation Symposium by explaining that growth in developed countries will be stagnant for the next several years.

The US is better positioned to tap into Asian countries’ growth, however, because its economy is more flexible and has handled the financial meltdown better. Plus, increased debt and excessive lending by Eastern European countries will prove a liability to the European Union’s growth.

“I would stay away from Eastern Europe unless you are planning on going on holiday,” said Karp.

He said the economies of China, India, Singapore, Peru and Brazil are expected to grow by 4 to 6% annually. The growth of these countries’ middle class, especially in China, will drive consumption of imports.

Karp said US recovery will be slow partly because consumers are saving more and the commercial real estate market isn’t out of the storm yet. The country’s debt continues to climb which means that either taxes have to be raised, or government spending significantly cut. “The question is what is going to drive growth,” he said. “At this point, it’s uncertain”.

Karp said the US federal government has to focus on the asset side and continue to tackle the credit market. Until the various credit markets are restored, interest rates can’t be increased. He said a decrease in excess reserves will signal restoration of credit markets.