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By Holly Cook | 11-11-2010 06:31 AM

Bootle: Long Haul to Recovery for Developed World

Interest rates may continue at low levels for quite awhile with deflation being a live risk, says Roger Bootle, author and managing director of Capital Economics.

Holly Cook: Hello. I'm Holly Cook for Morningstar. Joining me today is Roger Bootle. He's managing director of Capital Economics, and he's recently authored a book called "The Troubles with Markets."

Roger, thanks for joining me.

Roger Bootle: Pleasure.

Cook: So let me start first with the developed economies. We're no longer in recession, but we've clearly got a long, hard slog ahead of us. With the Fed recently having announced a second bout of quantitative easing, the U.K. government recently unveiled its austerity plans. What's your outlook in general for the developed areas?

Bootle: I think it's pretty grim actually. I suspect it won't be a double dip recession, but I think it's going to be a long haul to crawl out of the pit that we fell into after the financial crisis. Balance sheets are still very weak for consumers in America, and much of the Anglo-Saxon world. Governments of course are in deep trouble. In a number of countries, they're having to announce and implement austerity programs. I just don't see that these countries are in a position to generate much by way of domestic demand.

If there is to be a strong revival in this part of the world, I think it's got to come on the back of exports, and for that to happen, collectively, then the countries of the emerging market world have got to expand domestic demand, and change their exchange rates. If they do that, then I think you can then start to get quite optimistic about the developed world.

Cook: So you mentioned the emerging markets there. Obviously, they don't have the burden of balance sheet repair that needs to happen in the developed economies. What's your general outlook for that region?

Bootle: On the whole, those countries look as though they are going to grow very rapidly. China, for instance, I think, will probably continue to grow at something like about 9% or 10% for the next several years, unless there is a breakdown in the open international trading system, which I think could happen because American patience is running out, I think, with Chinese authorities. But just putting that to one side, I think the outlook for most of the emerging market world is really extremely good, rapid growth in East Asia, much of Latin America doing pretty well. Just about everywhere, actually, in the emerging market world is a completely different condition from the developed world.

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