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Global Growth Forecast
In spite of the heightened risks brought about by turmoil in the markets, particularly in the Eurozone and the UK, Northern Bank’s ‘Global Scenarios’ report expects that the world economy will see a slight improvement in the final quarter of 2011 after a very weak showing in Quarter 3. The slowdown that occurred in the first half of the year was in part to be expected because of several ‘shocks’ that occurred in the form of rising commodity prices, policy tightening in Europe and the Japanese earthquake. Yet whilst these constraints appear to be easing, the ongoing debt problems on both sides of the Atlantic means that the recovery will happen more slowly than previously thought. However, in spite of ongoing pressure on equity markets, we believe that the decision by Chinese authorities to halt policy tightening combined with the expected recovery of Japanese output in the second half of the year will add impetus to global growth. In fact, before the threat of US government shutdown, their economy had been showing signs of recovery: unemployment figures were moving in the right direction and in July, personal spending had risen by 0.5%, the strongest reading since August last year. Our central forecast is that growth will resume, albeit at a lower rate. However, the world economy is not out of the woods yet. The advanced economies face a significant challenge in the form of juggling just how much fiscal tightening they can apply without choking off growth. Sluggish Western economies will face robust competition from emerging markets and we can therefore expect to see political tension between these powers and Eastern economies. The hope that growth in Western economies would be well underway before having to clamp down on government spending has been dashed and the expected job growth for this stage of a recovery has not materialised due to the aforementioned headwinds. Ultimately, we expect the years ahead to deliver disappointingly slow growth and they will struggle with elevated unemployment. Overall, Northern Bank’s latest global forecast suggests that the world economy will grow by 3.8% in 2011, revised downwards from 4.2% in our previous report. US growth figures are still expected to be soft, with 1.6% growth in 2011 and 2.5% in 2012. Euroland is expected to see a continued slowdown, with 1.6% growth in 2011 declining to 1.1% in 2012. China however is expected to grow by 9.3% this year, followed by 8.9% the next year; clearly emerging markets are where it is happening! To read more economic research from Northern Bank, log on to Northern Bank. Angela McGowan is Chief Economist at Northern Bank. For information on banking matters please contact Northern Bank on 028 9004 5000. The content of this section is provided for information purposes and does not constitute professional or other advice
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