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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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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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