Economy won't go back to old ways: Citi CEO

By AFP

July 15, 2010 Updated Jun 15, 2009 at 8:01 PM CDT

The global economy is seeing signs of stability but is unlikely to return to a system that created an "illusion" of profits, Citigroup chief executive Vikram Pandit said Monday.

Pandit, speaking to a national economic summit in Detroit, Michigan, said the crisis has shown the global economy needs "a new business model."

"The bold steps taken by policymakers around the world are starting to work," he said.

"We're seeing early signs of stability. Those signs are encouraging. But even as we achieve stability there are still economic challenges ahead of us."

Pandit, who heads what was once the world's biggest banks before the crisis forced it to seek one of the largest government bailouts, said he sees major differences in the post-crisis economy.

"The structure of the world economy is likely to be very different form the one that we're all familiar with," he said.

"We don't save enough as a country. If you don't save you do not invest ... we have too much leverage as consumers, and as a financial system, this leverage-funded consumption created an illusion of financial returns."

He said US consumer spending and credit creation were the main drivers of global growth but this is unlikely to continue.

"The world needs new drivers of growth and for that matter needs a new business model," he said.

"Businesses are going to have to search for new growth drivers away from US consumption and credit creation."

The US faces a "conundrum" because it needs to pay down its massive government debt but that paying down debt quickly may hurt growth needed to achieve prosperity.

"Policies that encourage growth are likely to be expensive in the short term," he said. "Policies such as those that increase taxes to pay down debt are likely to reduce growth and that is the conundrum that we're all going to have to face."

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