The global economy is slowing down and not likely to bounce back significantly any time soon, economists have warned investors.
Growth is largely unchanged over many months and is unlikely to accelerate in the near future, according to The Economist Global Intelligence (EGI).
The forecast is for the world economy to expand by 2.2% at market exchange rates in 2012, and by 3.1% at purchasing power parity (PPP) rates, giving more weight to emerging markets.
These rates are down on the corresponding figures for 2011 – 2.6% for the market exchange rate and 3.7% for PPP.
“These are exceptionally disappointing,” said a report from the EGI. “in the third year of a recovery from the Great Recession of 2008-09 the global economy is operating at little better than stall speed, and well below potential.
Growth too low
“Although next year will be better, we forecast a recovery only to 2.5% and 3.5%. The eurozone will expand fractionally in 2013, after contracting this year, and China will benefit from easier monetary conditions, stronger loan growth and faster project approvals.
The US will be supported by the Federal Reserve’s unprecedented level of monetary easing. None of this will, however, amount to a strong expansion. Only in 2014 will global growth return to 4% at PPP rates—a moderate showing.
“At no point within the five-year forecast period will global growth reach 5%, which we would classify as strong, and which would be necessary to begin to have a substantial impact on the high levels of unemployment globally.”
Another EGI report claims the economies in many countries remain weak – and some are worsening as business, consumers and investors hold back from spending while waiting for improvement.
Three big economic questions
The result is that the global economy is on hold and uncertainty is widespread, said the EGI, and can be reduced to three questions:
- Will the eurozone’s funding framework for indebted countries stabilise financial markets and prevent a collapse of the currency union?
- Will the coming “fiscal cliff” in the US—a combination of sharp tax increases and spending cuts—materialise, forcing the country into a recession?
- Will China’s efforts to boost economic growth succeed and, if so, when?
“We expect moderately favourable outcomes on each of these fronts, although we remain, as ever, more concerned about the euro zone than about the US or China,” said the report.
“As some of this uncertainty fades in the coming months, we expect a modest acceleration of growth in 2013. The advanced economies will continue to repair the damage—to banks, balance sheets and budgets—that sent them into recession in the first place.”