Reuters | Oct 14, 2010 | 8:18pm IST
The world economy is set to rely even more heavily on booming emerging markets like China and India next year, as recovery in rich nations from the worst financial crisis in generations, plods on, Reuters polls showed. The consensus from more than 500 economists polled across the Group of Seven industrialised nations and Asia found them less optimistic about recovery in the U.S., but forecasting robust growth in China and India next year.
Global GDP is expected to grow by a robust 4.6 percent this year from a consensus of 4.2 percent just three months ago, driven by emerging markets, but will then slow to 4.0 percent in 2011, according to the poll. A series of policy tightening moves and interest rate hikes in those fast-growing economies stands in stark contrast to unanimous expectations that the Federal Reserve is about to embark on a new round of asset purchases.
The Reuters consensus is now for a new round of quantitative easing (QE), starting in November and worth $500 billion, an attempt to reinvigorate a recovery that has quickly wilted leaving U.S. unemployment close to 10 percent. Expectations have also risen that the Bank of England will start a new round of asset purchases very soon, with analysts polled now split evenly over whether it will vastly expand its balance sheet.
"Central banks are responding to a disappointing economic recovery, the rising risk of economic relapse," said RBS economist Jacques Cailloux in a research note. "Deflation risks (are) judged to be the greatest at this stage." Economists expect a languid rate of expansion in the biggest developed economies through to the middle of 2012, with annual growth in many cases struggling to top 2 percent either this year or next.
While growth in each quarter is expected to quicken very modestly in the case of the United States, vast budget austerity measures in the euro zone and Britain are expected to sap the momentum from economic recoveries taking place there.
Japan, struggling to break the stranglehold of a strong currency, will likely see its economic recovery stagnate completely in the fourth quarter of this year before recovering slowly in 2011. It is already mired in deflation. Forecasts for the rest of the rich world show less of a worry about broadly falling prices, although inflation is expected to remain low enough to keep Fed and ECB policy rates on hold until late next year.