Recession fears ‘excessive’
THE coming year will provide growth in the global economy and with it increased opportunities for export businesses, the Northern Bank has claimed.
Despite the ongoing European debt crisis, the slowing of growth in China and continued uncertainty in the US, the bank’s ‘Global Scenarios’ report published this morning says 2012 will be a year of improvement and eventual growth of around four per cent as the eurozone experiences a short recession, the US economy shows signs of recovery and China regains momentum.
“Although the global economy is far from being a bright place at the moment, current fears of a global recession are probably excessive,” said the Northern’s chief economist Angela McGowan.
“There has been a continued economic rebound in the US and the conditions for emerging market growth have improved significantly. Without doubt the euro crisis is going to be with us for a long time and we will see bouts of financial turmoil. However, our central forecast remains that the recession in Europe will be short-lived and that the euro currency will not collapse.”
In Europe, the report predicts that, despite continuing volatility and the occasional trip back to the brink of crisis, action from politicians and central banks will keep the global economy returning to the conditions seen in 2008/09.
The downturn will be short-lived for a number of reasons, among them the link to the US economic cycle and the strength of emerging markets providing a lift for exports.
The report predicts that the Chinese engine is expected to start pulling again and join the United States in driving the global economy forward. Although growth in western economies will remain subdued, emerging markets are expected to see solid growth as inflation falls back sharply and leaves room for lower interest rates. Downside risks are still prevalent and principally stem from the euro debt crisis.
Recognising that the Chinese property market is a threat, it suggests the authorities have sufficient room to fight a collapse should that happen and along with the central bank, have already taken action to reduce both housing activity and house prices.
High income growth in China combined with low leverage in housing and continued urbanisation should all ensure that the housing market does not collapse. Also, as food represents 33 per cent of Chinese private consumption, falling inflation has a very strong impact on economic growth.
The report looks for growth in China to rise from eight per cent in Quarter 1 this year to 10 per cent by Quarter 3.
On the US front, the report says the country ended 2011 on a strong note and, so far, is the only region in the world to have recovered from the downturn earlier in the year. Growth in the US was three per cent in Quarter 4 last year and a combination of a recovery in private consumption and low inventories now point to positive growth of around 2.5 per cent in the year ahead.
“The world currently cannot risk ‘another Lehman Brothers’, as the room for manoeuvre in such a situation is much more limited this time due to very high budget deficits,” said Ms McGowan.
“It is therefore expected that all efforts will be made in Europe to avoid such a situation.”
“Despite the on-going risks that exist, our central forecast is for a small economic improvement at the global level in 2012. We expect the euro currency to muddle through with the US and China expected to pull global growth in the right direction.”
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Tuesday 29 May 2012
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