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This year now looks unlikely to deliver much improvement in the world economy’s growth rate, with a weaker outlook for Europe and the US tempering the cautious optimism that was evident in January. |
Still, Reuters polls of roughly 400 economists worldwide, published yesterday, suggested some of the threats to the health of the world economy are looking muted compared with a year ago.
The survey showed the world economy is expected to expand around 3.2% this year - the same rate the International Monetary Fund says it grew at in 2012.
Behind that headline number, just slightly down on January’s poll forecast of 3.3%, there are some major differences between this year and last.
China is finally showing clear signs of economic vigour, which should help push global growth even as the US economy looks set to slow, with sickly European economies acting as the major drag.
The outlook for Japan, fresh from its announcement of a $1.4tn monetary barrage, was little changed compared with a month ago.
While that means global growth has little scope to pick up significantly this year, at least some of the things that threatened to derail the world economy last year look a little less threatening now.
“If we went back a year ago, the three big worries were Europe, a hard landing in China and the US fiscal cliff, and for those I think the worst-case scenario looks less likely now,” said Craig Wright, chief economist at RBC in Toronto. “The recovery is taking hold, but it’s going to be an uneven, uncertain and underwhelming recovery.”
Wright expects global growth of around 3.5% in 2013, and that things should improve next year too - when the overall polling forecast is for a 3.8% expansion.
Overall, the poll tallied with Wednesday’s comments from IMF managing director Christine Lagarde, who said global growth was likely to remain tepid this year and central banks should keep their easy monetary policies in place.
After a strong start to the year, the US economy is set to slow as some of the effects of government spending cuts take hold, likely leaving the central bank’s extraordinary stimulus in place into at least 2014.
Economists in a Reuters poll ratcheted up their forecasts for first quarter growth to an annualised 3% from the 2% forecast last month. But that pace is not expected to last, slowing to 1.6% in the second quarter.
“We are expecting growth to slow but I wouldn’t throw this into the category of another ‘spring slowdown’,” said Michael Gapen, senior US economist at Barclays Capital.
Even the tepid growth expected for the US would be a dream scenario for many European economies, after analysts cut their outlook for the eurozone.
Economists now see a 0.4% contraction for this year in the single currency bloc compared with a 0.1% decline predicted just three months ago.
Worse for the eurozone is that what growth it has is being helped by Germany, which is expected to pick up modestly. The other big economies - France and Italy - are in a slump.
“The lack of growth and record unemployment, combined with deeper spending cuts and a credit crunch as peripheral banks deleverage, present a real risk to the eurozone’s future,” said Lena Komileva, chief economist at G+ Economics in London.
Britain’s economy will do scarcely better, although most expect it narrowly missed a third recession in five years in the first three months of this year.
The Bank of Japan, led by new governor Haruhiko Kuroda, last week delivered a massive dose of shock therapy to break the deflationary phase by promising to inject about $1.4tn in less than two years.
Despite that, analysts still projected that the economy will grow by only 2.2% this fiscal year, which began this month, and 0.4% next year, unchanged from a poll taken last month.
“The BoJ will probably ease again if there is any event, such as a negative impact from overseas, that dampens Japan’s economy and makes it even more difficult to achieve its inflation goal,” Takeshi Minami, chief economist at Norinchukin Research Institute, said.