Country Forecast World
The Economist Intelligence Unit, June 2013, Pages: 48
Fears of a spring slowdown in the US appear to have been exaggerated. Weak initial jobs figures have been revised away, and the labour market continues to improve; US employers created an average of 208,000 jobs a month between November and April, 50% more than in the previous six months. Fiscal tightening may yet dull the recovery, but US growth is still set to accelerate in the second half of the year.
The European Central Bank cut its main interest rate by a quarter percentage point in early May as economies sputtered across the euro zone. Aggregate unemployment in the currency area is above 12%, and GDP will contract for a second year in 2013. The interest-rate cut will have only a minimal effect on growth in the hardest hit countries, where funding costs for companies and households are not expected to fall much.
Many central banks outside the euro zone are also cutting lending rates to revive flagging recoveries and, in some cases, to try to weaken currencies. South Korea, Australia, Poland, India and Denmark have all cut rates in recent weeks. Coupled with ultra-loose monetary policy in the US, Japan and the UK, banks and financial markets are flush with cheap credit.
Country Forecast World
Key changes since April 13th 2013
World growth and inflation
Central banks flood markets with cheap money, but the benefits are uncertain
Global GDP growth in 2013 will be no better than the year before
A second half pick-up in growth is now less likely
Abundant liquidity is pushing some asset prices higher
Political pressures are emerging on many fronts
US economic growth was strong in the first quarter
China's economy slows, but growth should accelerate in the coming months
World growth and inflation: Risk scenarios
Negative scenario-One or more countries leave the euro zone
Negative scenario-Tensions over currency manipulation lead to a rise in protectionism
Negative scenario-The global economy falls into recession
Positive scenario-A sustained decline in oil prices provides a global economic fillip
Negative scenario-Tensions over disputed islands threatens to rupture Sino-Japanese ties
Negative scenario-Social and political disorder undermine stability in China
Negative scenario-The US economy stumbles following a wave of fiscal tightening
Negative scenario-Economic upheaval leads to widespread social and political unrest
Negative scenario-An attack on Iran results in an oil price shock
Positive scenario-Co-ordinated monetary stimulus kick-starts a global economic recovery
Regional summaries: North America
Most fiscal decisions have been taken, but the sequester remains in force
The debt ceiling debate has returned
There is backing for tax reform
Major legislation is possible in the current congressional term
The Fed will conduct open-ended bond purchases to boost the labour market
The US recovery is on an uneven track
Job creation has improved but could be slowed by the effects of fiscal tightening
Household deleveraging is advancing gradually
Private investment remains key to recovery
Canada's growth depends on housing market stability
Regional summaries: Japan
Abenomics amounts to a startling change in Japanese economic policy
Monetary policy has been at the forefront of the changes
The government has also increased fiscal stimulus
We now expect slightly faster growth this year and in 2014
Regional summaries: Western Europe
The ECB's bond programme continues to provide financial calm
OMT initiative has removed the risk of a forced sovereign default for now
The ECB's programme buys time for politicians' reform efforts
Cyprus bail-out breaks new ground
Is Slovenia next?
Spain and Italy face an uphill battle on deficit cutting and economic revival
Greece's debt relief has bought time, but economic and political risks remain
We have again lowered our forecast for euro area GDP in 2013
The ECB cuts its key policy rates
We have raised our forecast for UK growth
Regional summaries: Transition economies
The euro zone's troubles are a drag on growth in the eastern economies
The ECB's OMT programme eases financing constraints
We forecast a further slowdown in Russia in 2013
Ukraine needs an IMF deal to alleviate balance-of-payments pressures
Regional summaries: Asia and Australasia (excl Japan)
Asian economies are recovering from the 2012 slowdown, but not uniformly
China's recent performance has been disappointing
We have trimmed our China GDP forecast this month
India has been struggling, but the outlook is improving
The ASEAN economies are bucking the regional GDP slowdown
Weaker global commodity demand will weigh on Australia's growth
Regional summaries: Latin America
A cyclical rather than structural slowdown
The Brazilian economy struggles to gain momentum
The pacto runs into its first problems
A continuation of heterodox policies in Venezuela
Regional summaries: Middle East & Africa
Two years after the Arab Spring, political risk remains high
Israel's airstrikes on Syria add to regional tensions
Regional growth will be weak in 2013, but will pick up thereafter
Egypt's growth outlook to improve, but not return to earlier highs
Strong headline growth rates mask significant variance
Sub-Saharan Africa will miss key Millennium Development Goals
The growth outlook for South Africa is well below the regional average
Insecurity and infrastructure will negatively affect Nigerian prospects
Exchange rates
The yen has continued to fall in the wake of BOJ monetary easing
The US dollar is strengthening as the economy expands
China's currency continues to appreciate
World trade
A broad recovery in global trade is yet to take hold
Weak European banks are curbing trade finance, but others are stepping in
Countries are looking towards regional trade deals
Structural changes in international trade will ease global imbalances
Commodity prices
The second quarter is likely to represent a trough in commodity prices
Weak OECD consumption will act as a constraint on global oil consumption
Non-OPEC output growth is set to pick up in 2013-14, led by the US
Geopolitical risks to supply remain high
Prices will pick up in the second half of 2013, but remain subdued
Demand growth for hard commodities will be more subdued in 2013-17
Global assumptions
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