Global Economy Reviews

08.05.2010 16:04 World Economy Review - April 2010

The International Monetary Fund raised its forecast for global growth this year led by China and cautioned that a failure of nations to contain soaring public debt might have severe consequences for the world economy.
The IMF said the global economy will expand 4.2 percent in 2010, the fastest pace since 2007, compared with a January forecast of 3.9 percent. Emerging nations including China and India are leading the world out of its worst recession since World War II, with Europe and Japan trailing the U.S. among advanced economies, the fund said in its World Economic Outlook.
After governments spent trillions of dollars to revive growth, the IMF said the challenge facing policy makers gathering in Washington this week is debt near postwar records. The richest nations face growing pressure from investors to draft plans to reduce budget deficits, while emerging economies try to fuel domestic demand and avoid asset bubbles amid a surge of foreign investment.
The global recovery has evolved better than expected, but in many economies the strength of the rebound has been moderate given the severity of the recession, the IMF said. Activity remains dependent on highly accommodative macroeconomic policies and is subject to downside risks, as fiscal fragilities have come to the fore.
Finance ministers from the Group of Seven industrial nations meet later today in the U.S. capital. Tomorrow, finance ministers and central bankers from the Group of 20 developed and emerging economies meet to debate how and when to remove fiscal and monetary stimulus as the global expansion strengthens.
This year, advanced economies including the U.S., Germany and Japan will grow 2.3 percent, more than the 2.1 percent forecast in January, with unemployment forecast to stay close to 9 percent through 2011. The expansion in advanced nations will reach 2.4 percent next year, the fund said.
Emerging and developing economies including Brazil and Russia will grow 6.3 percent this year, a 0.3 percentage point increase from the previous forecast. Next year they will expand 6.5 percent, the fund said. Economies that are off to a strong start are likely to remain in the lead, as growth in others is held back by lasting damages to financial sectors and household balance sheets, the IMF said.
U.S. GDP will expand 3.1 percent this year before slowing to 2.6 percent in 2011, the IMF said. In January the fund expected growth of 2.7 percent for 2010 in the world`s largest economy. The euro area is likely to expand 1 percent this year, unchanged from the January projection, and 1.5 percent in 2011, according to the report. The IMF forecast U.K. growth of 1.3 percent this year and 2.5 percent in 2011.
The outlook for Japan`s economy this year was raised to a 1.9 percent expansion, up from 1.7 percent predicted four months ago. The Canadian economy was forecast to increase 3.1 percent this year, from a 2.6 percent growth outlook in January, the IMF said.
China`s growth is forecast to accelerate to 10 percent this year, unchanged from the January projection, after 8.7 percent growth last year. India`s economy will expand by 8.8 percent in 2010, 1.1 points higher than the IMF`s forecast in January.

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01.04.2010 21:55 World Economy Review - March 2010

World trade is expected to grow 9.5 percent in 2010, after suffering its biggest collapse since World War II in 2009, the head of the World Trade Organization Pascal Lamy said. "Our economists are forecasting a world trade growth for 2010 of 9.5 percent with developing countries` trade growing 11 percent and industrialized countries` trade growing by 7.5 percent," the WTO director-general said. "This means that trade-wise, there is light at the end of the tunnel and it`s certainly a good forecast, good news for the world economy," he added.
World trade plunged 12 percent in 2009 due to a "sharp contraction in global demand" during the economic crisis. Amid last year`s slump, China overtook Germany to become the world`s top exporter with some 1.20 trillion US dollars worth of merchandise exported in 2009, according to WTO data. Germany exported 1.12 trillion US dollars of merchandise, while the world`s biggest importer, the United States, was in third place with 1.06 trillion US dollars worth of exports last year.
The WTO noted that the trade slump last year was particularly magnified by the "product composition of the fall in demand, by the presence of global supply chains, and by the fact that the decline in trade was synchronized across countries and regions." Underlining the scale of the downturn, Patrick Low, chief economist at the WTO, said that the projected growth of 9.5 percent this year would need to be repeated in 2011 in order for the global economy to recover to peak trade levels reached in 2008 before the crisis struck. "If you need to do it in one year, you`ll need 14 percent," he added.
The economist warned that the 2010 forecast could yet prove over-optimistic if currency and commodity prices were to show wild swings, or if the financial markets were to show other adverse developments. On the other hand, "if unemployment were to be reduced faster than is predicted then that would have a good effect on trade growth rates," added Low. But while trade prospects appear healthy this year, prospects on the so-called Doha Round of negotiations for a global trade deal were more gloomy. "The outcome is that we are not where we wanted to be," said Lamy, after a week of meetings of the 153 WTO member states on ways to reach a deal on the long-running negotiations. "Yes, we made some limited progress since (2008) but obviously not enough to enter into the final game which will take some time," Lamy added.
The WTO chief also distanced himself from the 2010 target set by the Group of 20 developed and developing leaders for the conclusion of the Doha talks. "The technical reality is that given what`s on the table, it`s technically feasible, but it wasn`t a technical orientation. It was a political orientation," Lamy said. "I did not declare this political orientation. The answer to your question lies with the leaders, not with me," the WTO director-general said in response to a question on whether an accord was still possible by year-end.
he Doha talks began in 2001 with a focus on dismantling obstacles to trade for poor nations. However, it has been dogged by intractable disagreements. These include how much the United States and the European Union should reduce farm aid and the extent to which developing countries such as India and China should lower tariffs on industrial products. Successive deadlines to conclude the talks have been repeatedly missed.

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06.03.2010 12:24 World Economy Review - February 2010

OECD countries experienced 0.8 per cent growth in the fourth quarter of 2009, up from 0.6 per cent in the previous quarter according to seasonally-adjusted data. The United States and Japan led the growth, with GDP rising by 1.4 and 1.1 per cent respectively. By contrast, GDP growth in the euro area slowed to 0.1 per cent in the fourth quarter compared to 0.4 per cent in the third quarter. GDP growth in France was relatively strong, at 0.6 per cent but German GDP remained unchanged on the previous quarter and in Italy, GDP declined by 0.2 per cent. The United Kingdom recorded positive GDP growth of 0.1 per cent in the fourth quarter after six consecutive quarters of contraction.
Relative to a year earlier, GDP in the OECD contracted by 0.7 per cent, compared to a 3.4 per cent decline in the third quarter of 2009. With the exception of the United States, where GDP was 0.1 per cent higher than a year earlier, GDP contracted in all the Major Seven economies. Most of the year-on-year decline in OECD GDP reflected developments in the euro area (13 countries), which accounted for 0.5 percentage points of the total.
The International Monetary Fund (IMF) admitted a prevailing uncertainty about economic recovery, as the world has been hit by a strong crisis of bleak prospects. The IMF recently revised up its global growth forecast for this year and next and now expects the world economy to expand by 3.9% in 2010, followed by 4.3% in 2011.
The projected expansion is heavily skewed towards the emerging economies, however, notably Asia, and within the advanced economies there is also a pronounced dichotomy, this time between the US and Europe.
The US economy picked up momentum in the latter part of 2009, growing by 1.4% in the final quarter, and the most recent data implies a strong start to 2010, with the result that the consensus GDP forecast for the year as a whole has moved higher and now stands at 3%.
In contrast, the euro economy lost momentum in the final months of last year - Italy contracted and German growth was flat leaving GDP growth in the fourth quarter at just 0.1%. Moreover, the most recent data points to a weak first quarter exacerbated by adverse weather, and the consensus growth forecast for 2010, currently 1.2%, may well be revised down.

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01.02.2010 22:43 World Economy Review - January 2010

The global economy is poised to grow 2.7 percent this year after shrinking in 2009, the World Bank said Wednesday in a report highlighting risks to a "fragile" recovery. The World Bank said the nascent recovery from the worst crisis since the Great Depression was "expected to slow later this year as the impact of fiscal stimulus wanes."
"Overall, these are challenging times," said Justin Lin, World Bank chief economist. "The depth of the recession means that even though growth has returned, countries and individuals will continue to feel the pain of the crisis for years to come," he said.
Key impediments to growth are troubled financial markets and sluggish private sector demand amid high unemployment, the Washington-based development lender said in its "Global Economic Prospects 2010" report.
Overall, global gross domestic product (GDP) -- a broad measure of the output of goods and services that fell by 2.2 percent last year -- is expected to expand 2.7 percent in 2010 and 3.2 percent in 2011.
Growth would be led by developing countries, whose economies would have "relatively robust" growth of 5.2 percent this year and 5.8 percent in 2011, after managing to buck the global downturn with 1.2 percent growth last year.
China`s massive economy would continue to be the primary engine, with growth at 9.0 percent this year and the next. South Asia would post a 6.9 percent expansion in 2010, including a 7.5 percent rise in India. Growth would be more moderate this year in Sub-Saharan Africa (3.8 percent), in Latin America (3.1 percent) and in eastern and central Europe and Central Asia (2.7 percent).
Rich countries, impacted the most by the global financial crisis, would not recover so quickly. Developed economies, which experienced a 3.3 percent plunge in GDP last year, were projected to grow 1.8 percent in 2010 and 2.3 percent in 2011.
The United States, the world`s biggest economy and the epicenter of the financial crisis that triggered the downturn, would see 2.5 percent growth in 2010 and 2.7 percent in 2011. Hans Timmer, an author of the report, said data indicates that unemployment will only get worse. "Actually growth this year is not even strong enough to generate the jobs for the new people that are coming on the global jobs market, let alone that you need to create employment for the people who have lost their jobs in 2009," Timmer said at a news briefing.
The projected modest global expansion this year should mean a rebound in world trade volumes that plummeted 14.4 percent in 2009. Trade volumes were projected to expand by 4.3 percent this year, and accelerate to 6.2 percent in 2011. Oil prices were forecast to hold around 76 dollars a barrel in 2010 and 2011.

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05.01.2010 12:42 World Economy Review - December 2009

LIKE their peers overseas, Australian economists see the recovery from the world financial crisis and the recession it caused taking place on two quite distinct growth paths. The developed Western world that created the debt-funded, asset-pricing boom and bust is expected to grind its way upward, as unemployment, excess capacity, subdued demand and debt in the public and private sectors continue to weigh heavily.
And what used to be called the Third World will grow much more quickly, led by the four ``BRIC`` economies Goldman Sachs identified as the emerging new industrial powers - China, Brazil, India and Russia, ranked by size (Goldman rearranged the initials to produce the acronym).
The largest of the four and the fastest growing is China, and its quick rebound from two quarters of sub-par growth in the six months to March 2009 is the crux of the survey`s forecast for global growth of 2.75 per cent this calendar year, or 3.25 per cent excluding the survey group`s two biggest bears, Monash University`s Jakob Madsen and University of Western Sydney`s Steve Keen. The group sees China`s economy expanding by a little more than 9 per cent this calendar year, slightly below the global consensus forecast of 9.6 per cent.
And while the survey does not include specific forecasts for India, Brazil and Russia, the global consensus is that they too will outpace the developed economies, growing by 7.6 per cent, 4.6 per cent and 3.5 per cent respectively, producing average BRIC growth of 7.6 per cent, strongly up from growth of under 5 per cent in 2009.
In contrast, those surveyed by The Age see the US economy growing by only 2 per cent this year, after it contracted by about 2.4 per cent in 2009 (Excluding Madsen and Keen, the forecast is slightly bolder at 2.4 per cent).
The other developed northern hemisphere economies will grow even more slowly: more than 700 economists surveyed by the Consensus Economics group forecast growth of 1.4 per cent in Japan, 1.2 per cent in Europe, and 1.2 per cent in Britain.
This two-speed recovery could continue for some time. Growth in China, in particular, is positive for the world, and the Australian economy is particularly well placed to benefit from Chinese demand for commodities that also pushes up commodity prices.
But the BRIC story is unfolding rather than complete. Based on International Monetary Fund numbers for 2008, the BRIC economies accounted for a combined 22.6 per cent of global economic output, compared with 52.4 per cent for the struggling developed economies: Europe and Britain (25.4 per cent), the US (20.7 per cent) and Japan (6.3 per cent).
The Western world is still crucial to a full global recovery, in other words. And in all the Western economies the big question is still whether the recovery from the crisis has been purchased by huge fiscal and monetary stimulus, or just rented, with the eviction notice looming as the stimulus fades.
The pointers are mixed. Australia`s latest national accounts reveal, for example, that household disposable income fell by 1.6 per cent in the September quarter, after growing by 11.2 per cent in the previous three quarters under the influence of interest rate and government spending stimulus that is now fading.
On the other hand, household wealth is rising again, as the sharemarkets continue to recover, and as home prices stay high. It rose by 17.1 per cent in the September quarter to a two-year high, the biggest quarterly improvement in 17 years.
The results of the new year sales now under way will be another pointer, but The Age survey points to a spending hit as the stimulus eases. At the predicted 2.64 per cent growth clip this year (2.85 per cent excluding the bearish Madsen and Keen), Australia`s economy will be running about 1 percentage point below its potential.

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