Global Economic Recovery - Are We There Yet?

Analysts are now revising upward their growth estimates, suggesting that the contraction of growth will be slightly less severe than was expected in February and March. However, they remain divided about whether the recovery will begin in the latter half of 2009 or be delayed until 2010. Consensus now suggests that the U.S. economy might bottom in H2 2009 and that Chinese acceleration in H2 2009 could be more pronounced. The outlook remains weak for Europe and Japan. However growth may be well below potential in 2010.

• IMF (July): The global economy is beginning to emerge from the recession "but stabilization is uneven and the recovery is expected to be sluggish." Economic growth may be 0.5 percentage points higher than projected in April 2009 or a 1.4% contraction in 2009 and 2.5% growth in 2010. Advanced economies will contract by 3.8% in 2009 - the U.S. by 2.4% (slightly less than in April), eurozone by 4.8%, Japan by 6%, UK by 4.3%, Canada by 2.3%. Eurozone will continue to contract in 2010 (0.3) while U.S. (0.6%) Canada (1.4), Japan (1.7%) and UK (0.2%) have below potential growth
• IMF: Emerging markets will slow sharply, growing by only 1.5% in 2009 before rebounding to 4.7% in 2010 (lower than the 6% in 2008). China to grow 7.5% in 2009 (8.5% in 2010) India 5.4% (6.5%). Asean to contract by 0.3% in 2009 before growing 3.7%) Latin America (-2.6), Eastern Europe (-5) and CIS (-5.8) to all face contractions in 2009 and sluggish growth in 2010 while the Middle east grows only 2%
• OECD (June): now expects a 4.1% contraction in the OECD area for 2009 (from the 4.3% expected in March) followed by a 0.7% growth in 2010. Thanks to a strong economic policy effort, OECD activity now looks to be approaching its nadir but the ensuing recovery is likely to be both weak and fragile. Recovery will take hold in a staggered manner across countries, reflecting differential policy stimulus and the force of headwinds from balance sheet vulnerabilities. A recovery appears to be in motion in most large non-OECD countries. The U.S. may bottom in H2 2009 and show marginally positive growth (as will Japan). Signs of impending recovery in the euro area are not yet as clearly visible and recovery may be sluggish.
• World Bank (June): Global GDP, after falling by a record 2.9% in 2009, is expected to recover by a modest 2.0% 2010 and by 3.2% in 2011 as banking sector consolidation, continuing negative wealth effects, elevated unemployment rates, and risk aversion are expected to weigh on demand throughout the forecast period. Despite higher growth rates in developing countries (given stronger underlying productivity and population growth), output will remain subdued. Given output losses to date—and because GDP will reach its potential growth rate only by 2011—the output gap (the gap between actual GDP and its potential), unemployment, and disinflationary pressures are projected to build over 2009 to 2011.
• UN (May): The world economy (World Global Product) is expected to shrink by 2.6% in 2009 after a nearly 4% annual increase in 2004-2007. Despite an expected recovery (1.2% growth) in 2010, risks are on the downside in 2010. World income per capita is expected to decline by 3.7% in 2009. In a more optimistic scenario, in which the financial and credit markets are healed in 2009, world GDP could rise 2.3% in 2010.
• In April's World Economic Outlook, the IMF forecasts that real global economic activity will contract by 1.3% in 2009 (1.8ppts lower than January's 0.5% growth prediction and 3ppts lower than in November 2008) before staging a modest recovery in 2010. In June (Reuters) it reportedly raised its forecast, suggesting global growth of 2.4% (up from 1.9% in 2010).
• Citigroup: Recessions — in terms of declining GDP — are ending, or soon should, in many countries, and our growth forecasts have edged up in recent months in many regions. with low inflation, most major countries can afford to keep low interest rates and extensive unconventional stimulus in place for an extended period with the RBA being among the first to hike rates. Global growth is likely to contract by 2% in 2009 before increasing by 2.9% in 2010 (based on PPP weights)
• Signs of stabilization―though scattered and sometimes contradictory―have begun to emerge. However, it is still too early to say that a sustained recovery is imminent. Global industrial production is currently down about 13% over last year, and while it may rise in the coming months due to inventory correction, the future remains murky. GDP forecasts for 2009 are still being marked down to reflect a weaker-than-expected start to the year.
• BNP: A deeper and sharper inventory reduction, stabilization of financial confidence and policy actions may have helped bring about green shoots earlier than expected, but they may be transitory given that the countries that have had a mercantilist growth strategy have not sufficiently stimulated domestic demand to offset the hurt from falling exports.
• RGE Monitor (April): Global economic activity is expected to contract by 1.9% in 2009. Advanced economies are expected to contract 4% in 2009. Japan and the eurozone will suffer the sharpest downturns. U.S. GDP will continue to contract, albeit at a slower pace throughout 2009, with negative growth in every quarter. Emerging markets will slow down sharply from the stellar growth rates of the past few years, with the BRIC economies growing less than half their 2008 pace of 7.5%.
• Morgan Stanley: Massive global policy action has moved us further away from a Great Depression-type scenario, and the risks of contracting output and structural deflation have waned. Global output will probably start growing in 3Q09, with G10 output growth turning positive in 4Q. Growth for 2009 as a whole will stay firmly in negative territory for all regions except Asia excluding Japan (AXJ) (where China and India will keep growth in positive territory).
• The global economy remains weak across the board, with no significant signs of improvement. Moreover, growth in 2010 is not a foregone conclusion.
• Goldman: Growth in the emerging world may likely keep the global economy from contracting in 2009, but risks are tilted to the downside. The global economy may expand by about 1% y/y in 2009, down from about 3.2% in 2008. Most of that growth will come from Brazil, Russia, India and China as domestic demand growth will offset declining exports. China alone may contribute more than 60% to global growth in 2009
• Citi: The nadir for growth in most regions remains late this year with 1.7% global growth expected, with shallow recoveries expected in 2010. The deepening global recession is creating greater challenges to policy making. Markets will face more challenges to growth after the recession due to a rise in the cost of financial inter-mediation and the potential to draw the wrong lessons from the crisis.
• The global financial crisis is bringing an end to the vendor financing model, whereby excess consumption in the US was financed by a savings glut in the emerging world. The market will ensure this adjustment finally happens.

p/s photos: Michelle Yip Shuen