Economist Intelligence Unit Global Economic Forecast Oct 2010
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The document summarizes the global economic forecast for October 2010. It notes that the economic recovery has started to soften, with weak private sector job growth and inflationary pressures remaining low. Housing prices have stabilized but excess supply could continue to put downward pressure on prices. The recovery in Europe faces risks from the ongoing fiscal crisis, while unemployment has risen moderately due to subsidies but employment recovery will be slow. Fiscal consolidation efforts limit the ability for further stimulus measures in many countries.
Economist Intelligence Unit Global Economic Forecast Oct 2010
- 1. Global economic forecast October 11th 2010
- 2. The recovery has started to soften, with the weakness of private-sector jobs creation giving particular cause for concern Inflationary pressures remain very weak—both the core consumer price index and the core personal consumption expenditure index are hovering just above zero in year-on-year terms House prices have stabilised, but a large stock of houses on the market now or coming in the near future will exert renewed downward pressures on prices
- 3. Europe’s economy is recovering but the fiscal crisis has raised risks The economy is burdened with spare capacity and urgent need for fiscal consolidation Unemployment has risen only moderately owing to wage subsidies, but employment recovery will be slow Greece is likely to need a re- structuring of its government debt despite a massive rescue package
- 4. Export performance in Japan will deteriorate over the remainder of 2010 and into 2011, partly reflecting a deceleration of Chinese growth The urgent need for fiscal consolidation greatly limits room for further fiscal stimulus beyond measures already approved Weak domestic demand is putting downward pressure on Japanese prices again, so that deflation continues
- 5. Chinese growth has been supported by massive stimulus, but this has aggravated existing imbalances India is growing strongly on the back of robust domestic demand. However, fiscal pressures remain and will act as a constraint on potential growth Brazil has been hit less than expected by the crisis, and has recovered rapidly on solid domestic consumption Russia’s recovery is supported by the rise in oil prices over the past year
- 6. Oil consumption growth will bounce back in 2010, led by the developing world. OECD consumption growth will remain subdued Output restraint and significant spare capacity in OPEC producers suggests ample supply. Any escalation in geopolitical tensions could disrupt our supply forecasts Loose global monetary conditions and investors’ search for return will support prices
- 7. Rising emerging market incomes and urbanisation will underpin medium- term demand growth Years of underinvestment, particularly in agriculture, will push up prices In the near-term, many raw materials suffer from temporary supply shortfalls Gold prices have been strong, fuelled by vibrant investor demand, while fundamentals remain weak. Persistent economic uncertainty will support prices in 2010-11
- 8. The Federal Reserve will not raise its policy rate until the third quarter of 2012 The Greek crisis has triggered ECB bond purchases; the central bank is also now unlikely to raise rates until the third quarter of 2012 Japanese policy rates will be held at emergency levels until late 2012 The European fiscal crisis also raises new concerns for banking sector stability
- 9. Concerns about the US economy have helped to weaken the US$ against the euro in recent weeks Expectations of earlier rate hikes in the US and lingering concerns about the fragility of the euro zone will support the US$ against the euro over the longer term The yen will remain firm against the US$, reflecting heightened risk perceptions and Japanese institutional investors’ home bias
- 10. - Sovereigns default as public debt spirals out of control 16 - Developed economies fall into a deflationary spiral 15 - The global economy has a double-dip recession as stimulus fades 15 - New asset bubbles burst, creating renewed financial turbulence 12 - Protectionism takes hold, undermining globalisation 12
- 11. - The Chinese economy crashes 10 - The euro zone breaks up 10 - Economic upheaval leads to widespread social and political unrest 9 + Emerging-market growth surges 8 + Confidence revives, prompting a stronger rebound in demand 8