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Danger Points Threaten Sustainable Recovery: Zoellick

World Bank President Robert Zoellick said Monday he hopes the global economy will have a sustainable recovery in 2011, but added he sees a number of dangers that could see his hopes dashed.

The good news “is that the overall global recovery seems relatively solid, there is a challenge in that it is a multi-speed recovery so we have the developing countries growing more quickly and we are now having to deal with some of the questions of inflation and how they level off the growth," Zoellick told CNBC’s TV-18 in India.

"This is true of India but also China, some in South East Asia, some in Latin America and, meanwhile, the developed world, while it's recovering, it's not recovering at a pace that will deal with some of the large-scale unemployment. So there are still tensions in the system and there is still downside risk,” he said.

“There are concerns coming out of dealing with sovereign debt issues in Europe, also some of the municipalities in states dealing with the United States and then there is always the challenges we are dealing with now, with food prices," he said.

"You have the challenge in India, but there is also a question of will this put some strain on the global system. That depends on stocks and some of the overall production and you are seeing prices increase."

"I hope that we will have a sustainable recovery, but I think we need to recognize that there are danger points that we are going to need to face this year just as we faced last year and its going to require the key economies in the international system to try to work together and manage the differences, because if they spin out of control that increases the anxiety in the markets and that will hurt everybody,” Zoellick said.

With China President Hu Jintao due in Washington this week, the issue of theyuan’s dollar pegis likely to dominate the headlines, but Zoellick said he believes it will take time before we get movement on the yuan and the structural issues that prevent it rising faster than many would like.

“The Chinese currency policies have created some anxiety in some other large emerging market countries such as Brazil, which have has a flexible exchange rate and so I think this all goes to the issues of number one trying to make sure that they avoid slipping back with trade protectionism,” Zoellick said.

“Number two (is) keeping one's eyes on the fundamentals of growth. So, one of the things that I am trying to caution is, all the talk about exchange rates and monetary policies and one has to look at some of the structural aspects of growth,” he said.

“These are clearly going to be part of the Chinese discussion for their next five-year plan, how can they shift the more domestic-demand led growth," Zoellick said.

"It won't be easy, but I think they are trying to move in the right direction. Similarly there is debate in the United States about some of the structural aspects of growth. Those will have to be done at the national level but I think they can be interconnected at a global level."

“The dollar is going to remain the dominant reserve currency but you are going to start to have choices among different currencies and, so, one of the issues will be how we are going to flexible exchange rate system, can you move the Chinese to be a greater flexibility and how do you try to manage countries that are in a situation where you have interdependence but flexibility of currencies?"

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