Global recovery in motion but prone to slowing

Reuters | Sat May 29, 2010 | 3:41pm IST

Surging emerging economies will push global growth to a faster rate this year than previously thought, but the upward momentum will run out next year, a Reuters poll of economists showed on Friday. Median forecasts from 32 economists showed the global economy on a purchasing power parity basis growing 4.1 percent this year, compared to 3.6 percent predicted in a poll conducted in January. But they saw slower growth of 3.8 percent for 2011 amid huge uncertainty surrounding the fiscal health of euro zone nations and how China might moderate its rocket-like economic growth. In January’s poll, economists saw global growth of 4.0 percent for 2011.

The 16 euro zone nations, which combined form the world’s No. 2 economy, have been weighed down by feverish speculation about how some of their number — notably Greece, Portugal and Spain — will be able to manage their vast debts, sending the single currency and other assets into a tailspin. Timo Klein, senior economist at IHS Global Insight, said the crisis of confidence has forced some euro zone countries to introduce severe budget cuts more quickly than might have been expected before, which was bound to depress growth there slightly next year. "The fact is that the increasing growth momentum previously seen for 2011 compared to 2010 has received a dampener," he said.   

Chinese Finance Minister Xie Xuren said on Friday that sovereign debt problems in Europe will affect the global recovery, leading China to maintain its "proactive" fiscal policy. On Wednesday, the Organisation for Economic Co-operation and Development forecast the Chinese economy to grow 11.1 percent this year, warning that overheating was becoming a problem. It said it was important for China to move towards a more neutral monetary policy stance, which would involve an increase in interest rates and greater flexibility in the yuan’s exchange rate. The OECD predicted slower Chinese economic growth of 9.7 percent next year. "The growth seen in countries like China and India is not repeatable in the main industrialised countries these days, which will continue irrespective of the individual cyclical ups and downs," said IHS Global Insight’s Klein.


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