The world economic situation has been extremely complicated in 2010. This year saw fluctuating market confidence, changing commodity prices, imbalanced economic recovery, diverse economic policies, lingering trade protectionism, and fierce currency battles.

Recovery woes

Despite a difficult recovery, the world economy still enjoyed a growth rate beyond popular expectations. The International Monetary Fund (IMF) estimated the 2010 growth rate would hit 4.8 percent, with developed countries achieving a growth rate of 2.7 percent, and emerging economies and developing countries notching a rate of 7.1 percent. The IMF further estimated that, in 2011, the world economy would see a slightly lower growth rate of 4.2 percent, but would experience a more expansive recovery.

DEALING WITH DEBTS: Portuguese Minister of State and Finance Fernando Teixeira dos Santos (right) chats with EU Commissioner of Economic and Monetary Affairs Olli Rehn during a euro-zone finance ministers' meeting in Brussels on November 16. Those at the meeting discussed measures to cope with the European sovereign debt crisis (WU WEI)

The fact that the economy exceeded expectations is largely due to the strong performance of emerging economies; they were the main catalysts for this round of world economic recovery.

All developing regions embraced a higher growth rate than expected. Among them, Asian nations performed exceptionally well. The Asian Development Bank predicted a 2010 regional growth rate of 8.6 percent, higher than the average growth rate from 2000 to 2007—7.5 percent. China and India were the cream of the crop, with estimated growth rates of 10.1 percent and 9.7 percent, respectively.

According to the IMF, increasing demand in emerging economies will account for half of the global demand increase in the next three years. In addition, Asia will—for the first time—become the engine of the world economy, and domestic demand will be the major driving force.

Though the journey was a slow one, the United States, Japan and Europe continued down the road to recovery. They are projected to achieve a growth rate of 2.6 percent, 2.7 percent and 1.6 percent, respectively, this year. It is worth noting that they also took steps to strengthen their ties with emerging markets.

In addition, the overall economic picture has started to improve. International trade continues to grow and the flow of global capital has been restored. The world economic recovery is continuing and more signs of market self-regulation are being seen.

However, as Europe's debt crisis indicates, global economic development has entered a period of fluctuation; though the world economy seems strong, it is actually fragile. In this period, uncertainties are on the rise and larger challenges may appear at any time.

The balance of world economic power has begun to shift: There is serious growth in the South, very little in the North, recession in the West and an economic rise in the East. The recession has made the situation extremely difficult for developed countries, especially those that have been burdened with high unemployment rates, high deficits and high debts, coupled with low growth and low inflation.

What's more, the difficult recovery has damaged developed countries' efforts toward international cooperation, as they are busy dealing with domestic issues. The key problem is developed countries have yet to identify domestic pillars to support sustained economic growth. It has been the strategic choice of Western countries to stimulate economic growth by promoting exports, employment and consumption. As a result, the risk of a second recession is slim. But slow economic growth has become a reality for developed countries, while the focus of the world economy is rapidly shifting to emerging markets.

Financial risks

Faced with slow economic recovery, developed countries—led by the United States—have reverted to loose monetary policies. This policy has led to big financial risks.