06/10/2013 02:05 EDT | Updated 08/10/2013 05:12 EDT

Economic Forecast: Emerging Countries Will Soon Control Half Of World's GDP, Scotiabank Says

MONTREAL - High unemployment and growing income inequalities have undermined public confidence in global institutions, the head of the one of the world's leading economic think-tanks said Monday.

"Today we have lost the trust in government, we have lost the trust in political everything that we built as a society for 100 years and now there's an enormous degree of cynicism," Angel Gurria told an economic conference in Montreal.

Gurria, secretary-general of the Organization for Economic Co-operation and Development, said voters are turning to strange options, sometimes just because they offer something different.

The situation is particularly acute in Europe where unemployment, especially among young, is high and inequality between rich and poor has grown.

People also see that many large multinational corporations pay little or no taxes.

"Put it all in a cocktail, shake it and of course it blows (up) in your face."

Gurria said international organizations must re-examine their roles in light of the new paradigm and economic situation since the economic crisis.

"We probably forgot that, in the end, this is all about people, we forgot that in the end if it doesn't help people it doesn't really matter that much."

The OECD is calling for a focus on four areas — structural changes, social issues, green initiatives and institutions.

"These are the four legs of the new table that we believe very strongly we have to build and which we hopefully will already have started building given that we ran out of the other options," he told the conference.

Gurria said the global economy is gradually gaining traction as "courageous" steps already taken are starting to pay off. Growth in all major OECD economies is projected to pick up in the coming couple of years.

But he called it "a rather weak, hesitant, uneven recovery" with growth weaker that hoped for in the emerging world while Europe struggles to exit recession.

James Bullard, the head of the Federal Reserve Bank of St. Louis, noted that American employment picture has been improving as consumers increase spending and home construction grows.

The U.S. unemployment rate is expected to drop to 6.5 per cent by year-end as the American economy is projected to advance by two to 2.5 per cent annually.

Gurria said the world always counts on the resilience, flexibility and vibrancy of the American economy. But what's worrying is politics and the difficulty of reaching agreement on any course of action.

Scotiabank chief economist Warren Jestin told the gathering, dubbed the Conference of Montreal, that emerging countries in Asia, Africa and Latin America will soon control half of the world's economy, up from a third currently.

He said growth rates in the developing world will be two to three times the level of the developed world and will be the global economic engine by 2020.

Jestin said Europe, for example, faces economic growth that will at best reach one per cent over the next five years.

The winners will be businesses that are less focused on the United States and Europe, he said.

"It is a different type of competitive environment, but is one that is very exciting and will probably be very positive for Canada going forward," Jestin said.

Barclays chairman David Walker said banks bear a major responsibility for the financial crisis, but that the criticism has been overdone by some.

"Knocking the banks and bankers has become a political and media industry," Walker said.

However, he also decried the short-term thinking by government and by companies focused on quarterly results. "I'm convinced that there's need for much greater awareness of the affliction of an undue short-term focus or myopia in our capitalist democratic societies."

Quebec Premier Pauline Marois hailed her province's efforts to balance its budget next year and as well as efforts to attract foreign investment.

Marois said Quebec opposes protectionism and remains in favour of Canada signing a free-trade agreement with Europe.

However, she later told reporters that her government unconditionally supports the supply management system for agriculture, which is one of the main points of contention in the negotiations.

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