World Economic Update
by Doug Lawson
Global growth is projected to grow at 3.5 percent in 2012, then accelerate somewhat to 3.6 percent from 2013-2016. At 3 percent, on average, global growth will still be somewhat higher than the period 1980-1995 but between half and a full percentage point below the growth rate from 1995-2008.
China’s economy has shown its resilience in the midst of a difficult external environment buoyed by corporate profitability and rising household incomes. However, net exports are forecast to be a significant drag on growth in 2012 and 2013. As a result, growth is expected to fall to 8.25 % in 2012, compared to 9.2% in 2011.
Even with modest output gains in Germany and the U.K., Europe is being dragged into recession by the increasing austerity being implemented in the more heavily indebted countries of Greece, Portugal, and Ireland, and the larger nations of Italy and Spain. Chronic and rising unemployment, particularly among the younger workers, will work against any quick recovery in light of the unprecedented structural adjustments related to wages and productivity needed to regain export competitiveness. Household deleveraging in the more highly indebted developed nations will continue, with most countries embarking upon a multi-year period of fiscal consolidation. Many financial institutions around the world will face tighter regulatory requirements that will impact lending in a slower growth environment. Experts do agree though that the recession is likely to be short lived.
The US economy may be starting 2012 on a slightly softer note than previously expected by most experts, with personal spending flat in January and core capital goods orders on a weak trend. But, this shouldn’t prove indicative of the year as a whole. Consumer spending has already started to pick up again, as evidenced by February retail sales figures, and recent strong hiring numbers combined with a pick-up in consumer credit point to this trend continuing. As a result, some forecasters have revised up their 2012 forecast 2.5%, although growth in 2013 is still forecast to decelerate to well below consensus as fiscal tightening bites.
The forecast for Canadian output growth in 2012-13 is expected to advance at around a 2% rate in both years. Improving U.S. activity is supporting a pickup in industrial production and exports. At the same time, slowing job growth and high household debt levels are expected to keep housing and consumer spending on a modest growth trajectory.