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06.01.2012 15:21 World Economy Review - December 2011

Fitch Ratings has revised downwards its forecast of global economic growth in 2012, and remains concerned about the ability of politicians in Europe and the US to resolve financial market tensions.
Fitch now puts growth in the major advanced economies (MAE) at 1.3% in 2011 and expects it to remain weak at 1.2% in 2012, followed by only a modest acceleration to 1.9% in 2013. Compared with the previous GEO in October, Fitch has revised down its GDP forecasts over the entire forecast horizon to 2013. The agency forecasts global growth, based on market exchange rates, at 2.4% for 2012 and 3.0% in 2013, compared with 2.7% and 3.1% previously.
Mildly negative quarterly growth rates are likely over the next quarters in the eurozone (EZ) and, among its four largest members, Fitch expects only Italian GDP to contract over 2012 as a whole, by 0.5%. However, the outright contraction of the eurozone economy over 2012 is now a one-in-three probability.
The recovery in the US will remain lacklustre in the short run with stronger growth momentum expected from H212 onwards, weighed down by the continued drag from the housing market as well as fiscal tightening equivalent to around 1% of GDP. In line with weak GDP growth in the EZ, the economic outlook has also weakened in the UK, where Fitch has revised down its GDP growth forecasts again to just 0.7% in 2012 and 2.0% in 2013.
In contrast, Fitch expects the economic growth of BRIC countries will remain robust over the forecast horizon, at 6.3% in 2012 and 6.6% in 2013, well above MAE or global growth rates. Nevertheless, in line with the economic cycle of MAEs, China and Russia will slow in the coming years. Brazil and India have already experienced a sharp slowdown this year and are expected to regain some of the lost momentum by 2013.
In Fitch`s assessment downside risks dominate at this current juncture. In particular, financial tensions may intensify further in the EZ. A special section of the GEO explores such an alternative scenario to Fitch`s baseline case and highlights the fragility of economic growth in the EZ.
Notwithstanding the short and long term decisions taken by the European Council on 9 December to resolve the euro crisis, market tension remains high. Furthermore, progress on US fiscal consolidation or global imbalances could unwind in a disorderly fashion. Therefore, the probability of unfavourable outcomes is high and the risk of tail events, with severe consequences, has increased over the last months. Conversely, improvement in private sector balance sheets could generate stronger demand and a swift resolution of financial stress could boost confidence globally.

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03.12.2011 14:42 World Economy Review - November 2011

The global economic outlook has deteriorated significantly, the Organization for Economic Cooperation and Development said, as it urged the European Central Bank to act decisively to prevent the euro-zone sovereign debt crisis from deepening and possibly dragging the U.S. economy to the brink of recession.
In its twice-yearly report on the global economic outlook, the OECD lowered its growth forecasts for the world`s largest economies, and said the euro zone is headed toward a mild recession. It also warned that the bloc`s debt crisis, now affecting countries previously seen as safe havens, could "massively escalate economic disruption if not addressed."
The Paris-based think tank cut its forecasts among its 34 members to 1.9% this year and 1.6% in 2012, from 2.3% and 2.8% in May. The OECD said it expects the euro zone`s economy to contract by 1% at an annualized rate in the last quarter of this year and by 0.4% in the first three months of 2012. For 2012, the OECD said the 17-country bloc`s economy will only grow by 0.2%.
The German government managed to sell barely half the bonds it had offered in an auction last week, a sign that the currency area`s troubles are affecting its strongest economies. In order to stop the contagion, policy makers need to secure "credible and substantial increases" in the capacity of the European Financial Stability Fund, the euro zone`s bailout vehicle, together with a greater use of the ECB`s balance sheet, Mr. Padoan said.
But there is little sign that euro-zone governments will agree on the measures the OECD believes are needed. Germany opposes France`s plan to give the ECB a greater role in restoring calm to the bond markets. The ECB currently buys limited amounts of government bonds on the open market to stem the rise in borrowing costs.
The OECD warned that possible but unlikely outcomes, such as a disorderly default on government debt, or a breakup of the currency area would have repercussions around the world. The OECD also warned that continued troubles in Europe, along with spending cuts and tax increases set to take place following the failure to reach a deal by the U.S. Congressional debt committee could push the U.S. economy to the brink of recession.
The OECD expects the world`s largest economy to grow by 2% in 2012, having forecast an expansion of 3.1% in May. It expects growth to pick up again to 2.5% in 2013. But without action in Congress, the OECD projects that U.S. economic growth would be barely measurable at 0.3% next year that will only improve to 1.3% in 2013.
The economic slowdown also is affecting trade, the OECD said, as it cut its prediction for global trade growth to 6.7% for this year and 4.8% for 2012, less than the 8.1% and the 8.4% increase previously expected.
The OECD said developing economies will continue to make a "substantial" contribution to global economic growth. The OECD said China would be better able to respond to slower growth if the yuan were allowed to appreciate.
"Without such currency policy, domestic monetary policy instruments... have to be kept at comparatively more restrictive levels to keep inflation on track," the OECD said. "Such a strategy involves a risk of an excessive economic slowdown."

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03.11.2011 13:50 World Economy Review - October 2011

Real gross domestic product (GDP) is projected to grow by about 3.9 percent this year, 3.8 percent in 2012 and 4.6 percent in 2013 on average in G20 countries if without comprehensive policy action to heal euro area debt crisis and secure fiscal policy in the United States, the Paris-based Organization for Economic Cooperation and Development said.
The OECD lowered its 2011 GDP growth estimates for the Eurozone from 2% to 1.6% and the 2012 estimate from 2% to 0.3%. For the United States, GDP is expected to expand by just 1.7% this year, from a previous forecast of 2.6% growth, and by 1.8% next year, down from initial estimates of 3.1% growth. China`s GDP growth estimate was raised from 9% to 9.3% for 2011, but lowered from 9.2% to 8.6% for 2012.
In a brief outlook report about G20 members, OECD expected "marked slowdown" in the euro area with "negative growth" in some economies while the US growth is projected to be "weak" with "a gradual pick-up from 2012."
The short-term economic outlook is heavily weighed down by uncertainties in the major advanced countries so that G20 leaders need to take "bold decisions" and "decisive actions" shortly, OECD Secretary-General Angel Gurria urged when presenting the report ahead of the G20 Summit in Cannes. Refusing to detail which eurozone countries would see the "negative growth", Gurria warned "this projection would happen if no actions were taken."
According to the OECD projection, GDP growth to remain weak in the advanced G20 economies over the next two years while the pace of activity in the major emerging markets is likely to be lower than in the pre-crisis period.
Due to slow economic growth, "unemployment is set to remain high in many advanced countries" with an average rate at 8.1 percent for 2011, 8.2 percent for 2012 and 8.0 percent for 2013, the OECD data showed. "Employment is the elephant on the table, not under the table," Gurria underscored.
As to euro area debt crisis, Gurria praised EU leaders` deal on Oct. 26 "an important first step" to address the debt and banking crisis, but he also pointed out these measures must be implemented "promptly and forcefully."
Many acclamation as well as buoyant market followed the EU bailout package passed on Oct. 26 as it finally agreed to recapitalize European banks with over 100 billion euros (140.18 billion U.S. dollars) and increased the EU bailout fund to 1 trillion euros (1.40 trillion U.S. dollars), but economists also called for more specific details to follow up.
"However, more detailed information is needed on the specific measures, including the options for EFSF enhancement," the OECD note said. "For the first time, we are talking about fiscal union, de facto fiscal union," Gurria added referring to solutions to Eurozone debt crisis. Current situation is "moving toward the right direction" but "decision" "execution" and "action" are what`s most in need.
Out of concern on G20 fiscal situation, the OECD note additionally revealed public debt against GDP ratios for the United States, Eurozone and Japan. The U.S. public debt is to bulge from 97.6 per cent of GDP this year to 103.8 percent in 2012 and 108.7 percent in 2013. The Euro zone`s data will be 95.2 percent, 97.2 percent and 97.6 percent from 2011 to 2013 in order while that for Japan is to reach 212.3 percent, 219.8 percent and 227.6 percent in order.
Gloomy outlook in advanced countries also increased risks of "unchanged" global imbalances while Chinese current account surplus is falling but that of the high-saving and oil-exporting countries are collectively rising.

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07.10.2011 13:04 World Economy Review - September 2011

HSBC Holdings Plc cut its forecast for global economic growth for the next two years and said the efficacy of any further stimulus measures will be limited. The world economy will grow 2.6 percent this year and 2.8 percent in 2012, compared with estimates published in June of 3 percent and 3.4 percent respectively, London-based HSBC economists including Stephen King and Madhur Jha said in an e- mailed note to clients. HSBC also lowered its euro-area and U.S. growth predictions, with the latter at “stall speed,” the economists said.
“Healthy economic recovery is now but a distant dream,” they wrote. “For the developed world, the downgrades are particularly aggressive whereas, for the emerging world, the reductions are more modest, helped by the ongoing support offered by China and India.”
Central banks such as the Federal Reserve and the European Central Bank may undertake further unconventional stimulus measures, including interventions in currency markets, while the Bank of England will keep its key interest rate on hold through 2012, King and Jha said. “These, though, are no more than reactive measures,” they said. “Permafrost has already taken hold: policy makers are now engaged in not much more than damage limitation.”
HSBC Holdings Plc also cut its economic growth estimates for most Asian economies, citing threats to exports and the impact of sliding stocks and currencies. Europe`s debt crisis and a struggling U.S. expansion signal Asian exports “will almost certainly take a large hit,” HSBC said in a report received today. Domestic demand “will also throttle down” as currencies and capital markets fall, with Asia excluding Japan growing 7.3 percent in 2011 and 2012, lower than earlier projections of 7.5 percent for both years, it said.
HSBC joins Goldman Sachs Group Inc. in dimming its Asian outlook after Europe`s plight and the threat of a recession in the U.S. roiled global markets. While the expansion in Asia will slow, Chinese growth will “hold up” and regional liquidity is “ample,” which should help avert a sharper deceleration, according to HSBC.
“The risks are certainly rising with every week that policy uncertainty persists in the West,” Hong Kong-based Frederic Neumann, co-head of Asian economics at the bank, said in the report. Still, Asia “may just avoid cracking under pressure” aided by China, he said.
HSBC cut its 2011 and 2012 projections for gross domestic product growth in Hong Kong, Indonesia, South Korea, Malaysia, Singapore, Taiwan, Thailand and Vietnam. It lowered 2012 predictions for Japan and New Zealand. Europe`s biggest bank left its 2011 and 2012 estimates for China, India, Australia and the Philippines unchanged. It predicts 8.9 percent growth in China this year and an 8.6 percent expansion next year.

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27.08.2011 14:07 World Economy Review - August 2011

The global economy has entered a "new danger zone," World Bank President Robert Zoellick warned in Sydney on Sunday (August 14th). "There is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," Zoellick said.
Addressing members of the Asia Society at an annual dinner in Australia`s largest city, he said the turbulence on the world financial markets this month has undermined investors` confidence. "What`s happened in the past couple of weeks is there is a convergence of some events in Europe and the United States that has led many market participants to lose confidence in economic leadership of some of the key countries," Zoellick said.
Stock and bond markets plunged into turmoil amid warnings that the debt crisis which has ravaged Greece, Portugal and Ireland is now spreading to two much larger Eurozone economies, Italy and Spain. Also stoking fears was the decision by Standard and Poor`s to downgrade the credit rating of the United States from triple A to double A plus.
France, the second largest economy among the 17 EU nations using the euro as their currency, was also the subject of rumors last week about its credit rating. "I think that those events combined with some of the other fragilities in the nature of the recovery has pushed us into a new danger zone. And I don`t say those words lightly," Zoellick said.
The World Bank chief stressed the need for strong action to appease market players. "It would be important that the primary economic actors take steps both short and long term to restore confidence," he said, calling on European leaders to enact structural reforms aimed at increasing productivity, job creation and free trade.
The Eurozone faces more serious problems than the United States, and decisions by governments and central banks often come "a day late", the World Bank chief said. If debt-laden countries, such as Greece and Portugal, are unable to show the prospects for growth, then the crisis in the Eurozone is likely to continue, Internet-based business wire service RTTNews quoted Zoellick as also noting.
Meanwhile, billionaire philanthropist George Soros suggested over the weekend that both southern European countries should leave not only the Eurozone, but the EU as well. "I think that the Greek problem has been sufficiently mishandled by the European authorities that this may well be the best solution," he told German magazine Spiegel in an interview, whose English translation was published on Monday. "Europe, the euro and the financial system could survive Greece leaving. It could survive Portugal leaving."

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