GBGC’ Global Economic Outlook
Following the “Great Recession” global growth remains uneven, with emerging economies (China+10.2%, India +8.8%, Brazil +7.5%) generating faster growth than advanced economies (US +2.4%, Eurozone+1.8%).
In 2010 the global economy grew by +4.8%, following a poor +0.6% in 2009. The forecast for 2011 is +4.2%. World trade continues to recover and grew by +12.4% in 2010, but it will slow down in 2011 to +6.8%.
Global production and trade rebound was boosted by stimulus from governments and central banks around the world and restocking by western firms.
In 2011 there will be a degree of fiscal retrenchment in a significant number of countries and an on-going consolidation of the balance sheet of many enterprises in the private sector.
However, there are unwelcome developments. Currency manipulation to provide goods with a competitive advantage in the world markets is becoming a problem in economic relations, increasing the risk of a global currency war. The US and China in particular are at odds over this issue.
The future risk for global growth rests in successfully managing a double balancing act:
i) Internal balancing: when the various fiscal stimuli are pulled back, fiscal consolidation will follow and private demand must take over.
ii) External balancing: many mature economies rely on domestic demand for growth but now must switch to exports for future growth. Many emerging economies rely on exports for growth and now must switch to domestic demand for future growth. This will require a shift of resources from export led sectors to domestic demand led sectors, or vice-versa.
Other risks include: increase of energy prices, inflation and fiscal consolidation in Europe.
Outlook for 2011
The US GDP is forecast to grow by +3.0%/3.6%, with an inflation of 1.0%. Growth will be sustained by the tax deal and additional stimulus agreed by President Obama and Congress, $600 billion worth of Quantitative Easing, loose monetary policy from the Federal Reserve, and growth of consumer expenditure and exports. The stock market is also expected to rise in 2011.
The downside risks are high unemployment (9%), high enterprise and household debt, high government deficit and state and local government debt.
EU GDP is forecast to grow by +1.7%. Except for Greece, Portugal, and Ireland, all countries are expected to grow. Growth will supported by increasing domestic demand and German exports.
Risks to the European economy come from the sovereign debt crisis engulfing other economies such as Portugal, Spain and Italy and the various fiscal consolidation programs tilting the area into recession.
Asia & Australasia
This fastest growing macro-area is forecast to post a GDP growth of +6.8% (China +8.9%, India +8.6%, Australia +2.6%, and Japan+ 1.2%).
Growth in Asia will be boosted by investment, exports to Asia, domestic demand and a growing middle class, while in Australia it will be sustained by commodity exports.
The downside risks are inflation and economic overheating, faltering global growth, energy and commodity prices, and the collapse of the housing sector, weakening of EU and US growth.
Central and South America
Regional GDP is forecast to grow by +4.0% (Brazil +4.5%). Commodity exporting economies such as Brazil will fare better than economies with strong links to the US such as Mexico.
Growth will be driven by commodity prices, exports to Asia, domestic demand, higher employment and wages, capital investment and foreign direct investment.
The risk to the region derives from a weakening of US and Asian growth, low saving rate, currency appreciation, inflation and skills shortages.
Middle East and Northern Africa (MENA)
MENA’ GDP forecast is+ 4.3%. For the Gulf countries growth will be sustained by higher oil prices and output, infrastructural and plant projects and government spending, while for the others growth will be supported by domestic demand.
The downside risks stem from frail European demand, weakening world growth, and high youth unemployment.
The region is forecast to deliver a +4.6% GDP growth and all countries should show growth.
Growth will come from increasing amount of oil coming into stream, commodity exports, domestic demand and improved macro-economic management.
As usual, the risks are political instability, unemployment, corruption, and weakening world growth.
More information about GBGC’ view of the world economy can be found in the White Paper we have written exclusively for the ICE exhibition, January 2011