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04.12.2009 21:04 World Economy Review - November 2009

Global business confidence has surged across virtually all geographies and industries and in particular in the US and the BRIC countries, according to the latest Business Outlook survey from KPMG International. The latest figures - - which reflect confidence in expected performance over the next 12 months - - suggest that recent signs of economic improvement are no flash in the pan and that a global recovery could now be well under way.
The survey findings, compiled by research firm Markit Economics on behalf of Big 4 accounting firm KPMG International, show confidence in future business activity running at +42.9 in manufacturing and +46.5 in services. For the US and the BRIC economies (Brazil, Russia, India and China) those figures rise to +54 and +54.1 respectively in manufacturing and +65.6 and +51.9 respectively in services. Similar numbers are posted for confidence around future new orders and business revenues. Despite all the cost pressures, even confidence around improved profits stands at +32.1 globally for manufacturing and +36.2 for services.
Prospects for increased employment in 12 months` time are slightly less rosy - - at +7.8 for manufacturing and +16.9 for services - - suggesting that the recovery has some way still to run before all companies start thinking about full recruitment once more.
Commenting on the results, Alan Buckle, Global Head of Advisory at KPMG, said: The latest Business Outlook numbers clearly demonstrate that almost all of us have turned the corner in terms of economic recovery. In nearly all sectors and geographies, business leaders are expecting improvements in their earnings and their business environment. A strong majority sees business being better in 12 months time than now; something which is consistent with GDP forecasts. This represents a quite remarkable turnaround in business confidence; well above what we might have hoped for, especially in the U.S. Many people may find the extent of the optimism exhibited here somewhat surprising. However, it is also clear that problems still remain to be addressed in parts of Europe and in Japan.
Across some of the key survey variables such as revenues, new orders, activity, profits and employment, the European countries within the survey under perform the global average by between eight and twenty points. Across both manufacturing and services sectors, Italy and the UK tend to be the best performers, with the latter almost certainly benefiting from currency issues over its Eurozone neighbors. In both Europe and Japan, manufacturers expect to continue shedding jobs over the next 12 months. Greece was the only country in which manufacturers expected activity to contract in the next 12 months.
The Japanese numbers are far less robust - - with half of their variables still in negative / pessimistic territory. Yet it could be argued that even this represents a minor triumph for a country still struggling with deflationary pressures.
KPMG says before the developed markets get too carried away with talk of their own revival, it is worth remembering that different economies have started this bounce back from very different points on the confidence scale. As the survey`s historic data shows, many Western companies which rather limped through the past few years were already some way behind their emerging market competitors whose spirits held up more robustly during the depths of the downturn - - and who now appear even more confident about the upturn.
According to Alan Buckle, this may well have major ramifications for the East versus West challenge which characterized the run-up to the credit crisis. He explained: Before the recession, Western companies were facing an increasing competitive threat from the emerging economies. Two years later, their competitors already have their eyes firmly set on a growth agenda while Western businesses are only just beginning to recover. Therefore, the challenge of dealing with the competitive threat of the East has not gone away. In fact, it has been exacerbated.
The developing markets appear to hold the aces; robust local demand, strong business and government balance sheets and of course the cost advantages. So while in isolation, these results are comforting to businesses globally, it is clear that the threat to the West`s business supremacy has increased as a result of the last two traumatic years.
The Business Outlook Survey is produced by Markit Economics on behalf of KPMG and is based on a survey of around 11,000 manufacturers and service providers that are asked to give their thoughts on future business conditions. The reports are produced on a tri-annual basis, with data collected in February, June and October. The current report is based on responses from around 6,200 companies.

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03.11.2009 20:15 World Economy Review - October 2009

Morgan Stanley has warned clients that central banks in high-debt countries may try to stoke inflation as a deliberate policy to rescue governments and tackle the legacy of the crisis. It said the surge in the public debts of Western countries is comparable to the effects of war, with the big difference this time that aging populations and excess capacity will make it hard to erode the burden through economic growth.
Faced with a Hobson`s choice between inflation and default, central banks may conclude that it is the lesser evil to monetize public debt, even if they are independent bodies.
If the fiscal path is deemed unsustainable, it may be preferable to create limited inflation early on -- to nip the debt problem in the bud - rather than to allow a mounting debt burden. We think the risk cannot quite be dismissed out of hand, said the bank.
This would be a deliberate transfer of wealth from lenders to debtors, a political minefield. It would cause huge losses for bond holders.
Morgan Stanley said any country embarking on this course would risk investor flight. However, the policy might work if carried out openly by setting a higher inflation target for a limited time. They would not want to scare the horses, it said.
Former IMF chief economist Ken Rogoff has proposed a 6pc level until debt is tamed. Morgan Stanley did not name candidates but the Fed, Bank of England, and the Bank of Japan fit the bill.
Meanwhile, the IMF confirmed its growth estimates of 8.5% for the Chinese GDP in 2009 and 9% in 2010. For Japan, the group has predicted a 5.5% decrease this year and slight growth of 1.75% in 2010. For the G7 countries, the IMF is cautiously optimistic, as they believe that the recovery will continue in 2010, albeit weakly, and predicts modest growth of 1.25% in 2010.
Consumption in G7 countries will remain weak for some time and will keep the GDP in Asia below an average of 6.6% registered over the past 10 years. In the medium term, for the IMF, political decision makers in Asia must continue to help their economies until the recovery is self-sustaining, but without causing inflation to increase.

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04.10.2009 14:53 World Economy Review - September 2009

The International Monetary Fund (IMF) raised its 2010 growth forecast for the world economy to 3.1 percent from 2.5 percent, saying the global recession "is ending." In its latest World Economic Outlook (WEO), IMF predicted that the global economy would grow by 3.1 percent in 2010, 0.6 percent higher than its prediction in July. It envisioned the world economy would have a contraction of 1.1 percent in 2009. The global recession "is ending," but the pace of recovery is slow and activity remains far below pre-crisis levels, said the report.
Advanced economies are projected to expand sluggishly through much of 2010, with unemployment continuing to rise until later in the year. Annual growth in 2010 is projected to be about 1.3 percent, following a contraction of 3.4 percent in 2009, the report said.
Among the major advanced economies, the projection for U.S. growth in 2009 as a whole is minus 2.7 percent, but has been improved to 1.5 percent in 2010. Growth rate is also projected to go up in the euro area, which is expected to turn from minus 4.2 percent in 2009 to 0.3 percent in 2010, while the picture in Britain is to turn bright as it would register a 0.9-percent growth in 2010 from a contraction of 4.4 percent.
In emerging and developing economies, real gross domestic development (GDP) growth is estimated to reach almost 5.1 percent in 2010, up from 1.7 percent in 2009, said the report, adding that the rebound is driven by China, India and a number of other Asian economies. China will lead Asia out of the economic recession by growing by 8.5 percent this year and 9.0 percent in 2010, the report said. India is expected to expand by 5.4 percent this year and 6.4 percent next year. Russia would grow 1.5 percent in 2010 from minus 7.5 percent in 2009.
The WEO presents the IMF`s analysis and projections of economic developments at the global level in major country groups and in many individual countries. It focuses on major economic policy issues, and analysis of economic development and prospect.

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09.09.2009 13:37 World Economy Review - August 2009

The International Monetary Fund has revised up its forecast for economic growth this year and next in major industrialized economies and worldwide. The IMF now forecasts the world economy will shrink by 1.3% in 2009, a shade less than its earlier forecast of 1.4% contraction, before growing by 2.9% in 2010, revised up from the 2.5% it expected in April. The figures, which had been due to be published next week, support comments made by Mr Dominique Strauss Kahn MD of IMF, when he said that economic recovery would be sluggish and warned against unwinding recent economic stimulus packages too quickly. For advanced economies, the IMF predicted 3.7% contraction this year, slightly less than the 3.8% previously forecast, and then growth of 1% in 2010, up from an earlier 0.6%. The forecasts are broadly in line with revised forecasts for the second half of 2009 released by the Organization for Economic Cooperation and Development.
The IMF upgraded its 2009 forecasts for the United States, euro zone, Japan and Germany, with its estimated contraction reduced to 5.3% from 6.2%. But it worsened its 2009 outlook for Britain, seeing 4.5% contraction instead of 4.2%. For 2010, forecasts for all the above economies were revised up, with the exception of Japan`s growth, which was left unchanged at 1.7%. The IMF is questioning whether the world`s economic recovery is sustainable. Olivier Blanchard, the director of the research department at the IMF, says that rapidly increasing debt on top of already large fiscal deficits could stall the nascent recovery.
The start of a muted recovery was confirmed by the Organization for Economic Cooperation and Development (OECD) today with an estimate that the GDP of the OECD area has stabilised. Following a fall of 2.1% in the previous quarter, developed countries GDP fell by 0.002% over the second-quarter.
GDP for the seven largest developed countries fell by 0.1%. However, the rate masks considerable variations between different countries, from a 0.9% increase in Japan to a 0.8% decline in Britain. America`s GDP fell by 0.3%, adding to hopes that it is about to escape recession, while France and Germany recorded positive growth rates of 0.3%.

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10.08.2009 20:42 World Economy Review - July 2009

The World Economic Outlook (WEO) of the International Monetary Fund (IMF), July edition, notes that the global economy is beginning to pull out of recession unprecedented since World War II, but stabilization is uneven and the recovery is expected to be sluggish. Accordingly, global activity is forecast to fall by 1.4% in 2009, but to expand by 2.5% in 2010, which is 0.6% higher than envisaged in the April 2009 WEO. The higher annual average growth rate for 2010 largely reflects carryover from a markup in growth during the final half of 2009. On a Q4 to Q4 basis, real GDP growth is projected at 2.9% in 2010, compared with 2.6% in the April 2009 WEO forecast. Accordingly, GDP in the advanced economies is projected to decline by 3.8% in 2009 before growing by 0.6% in 2010.
Growth projections in emerging Asia have been revised upward to 5.5% in 2009 and 7% in 2010. Growth projections for emerging Africa and the Middle East have been revised downward by 0.3% and 0.5% in 2009, respectively, while those for 2010 are broadly unchanged.
The IMF, in its annual report on the U.S. economy, stuck to earlier forecasts that gross domestic product will shrink by 2.6 percent in 2009 and then rise by 0.8 percent in 2010. The report was prepared before U.S. data showed the economy contracted by a 1.0 percent annual rate in the second quarter. "As a result of their increasingly strong and comprehensive policy measures, the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened," the IMF said in its report, which followed consultations with U.S. officials and institutions. "Nevertheless, with financial strains still elevated, the recovery is likely to be gradual, and risks are tilted to the downside," it said.
The IMF said unwinding fiscal and monetary stimulus measures would have to wait until a sustainable recovery is underway. But they need to develop exit strategies from stimulus programs, strengthen financial regulation and in the medium term cut budget deficits.
The IMF`s North American division deputy, Marcello Estevao, said rising unemployment is the greatest threat to recovery efforts. "The weakness in the labor market is going to reflect into the weakness in the housing market. When people lose jobs, wages don`t grow as much, it`s harder for people to pay their mortgage, Estevao said. "There is substantial uncertainty exactly how this feedback would play out. And that is one of the reasons we have this very gradual recovery outlook for the U.S." He said the IMF sees U.S. GDP growing "a little bit" in the second half, with a sustained recovery not starting until the second quarter of 2010. The IMF`s forecast for unemployment was unchanged, seeing 2009 unemployment averaging 9.3 percent and rising to 10.1 percent for 2010.

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