Predictions that the world’s gross domestic product (GDP) growth would outpace last year’s seem no longer on target, and 2013 growth is now seen to be on a par with 2012 instead, according to a recent report by Bimco.
“By mid-July, the IMF ‘blew the whistle’ and projected very uneven distribution of growth projections for 2013,” it said. “Japan is upwardly revised by 0.5% point, now at 2.0%, whereas the US and the Euro Area are seen to be lower by 0.2% points, now at 1.7% and -0.6% respectively. World trade volumes of services and goods are also expected to come in lower than the Fund anticipated back in April.”
The forecast revisions were due to “growing pains and materializing downside risks,” with all three major economic zones—the United States, Europe, and Asia—contributing negatively to the downgrading.
Bimco raised three factors for the growth slowdown. One was the disappointing growth in major emerging market economies such as China, Russia, and South Africa, “reflecting, amongst other things, slower external demand growth, lower commodity prices and financial stability concerns.”
At the other end of the spectrum, growth in Japan was stronger than anticipated, pulled forward by private and public consumption and improved net exports.
Another reason for the downgrade was that the recession in Europe and the Euro area was deeper than expected. “This resulted in low demand, depressed confidence, and weak balance sheets (in certain nations) interacting to exacerbate the effects on growth and the impact of tight fiscal and financial conditions.”
But Bimco said there was finally some good news coming out of Europe. “It appears as if even the hard-hit Euro Zone periphery nations and struggling core nations have all improved in the last four months. In total, this has lifted the Markit Eurozone PMI Composite Output Index above the 50.0 no-change level for the first time in January 2012.”
The third reason for the growth forecast revision was that the U.S. economy grew at a slower pace than expected, as stronger fiscal contraction was outweighing an improving private demand situation.
Twice-revised first quarter growth in the U.S. came in at 1.1 percent, which was significantly lower than the estimate of 2.4 percent. Growth was impacted by restrained consumer spending, a low level of business investment, and declining exports.
Estimates of GDP growth in the second quarter came in at 1.7 percent. Growth was driven by inventory-building as consumer spending cooled. During the second half of the year, consumer spending is expected to pick up.
Bimco gives a cautious outlook for the whole year. “We need to rev up the biggest engine of them all: the United States. Much has been done, even more has been said, but a sustainable recovery has not yet arrived anywhere in the advanced economies of the world.”
It sees among the new risks the possibility of a longer growth slowdown in emerging market economies. “A less loose monetary policy in China and later also in the US is unfortunately likely to become more powerful on an economic international scale than the positive effects stemming from the expansion of the monetary base in Japan.”
But the euro area is expected to return to positive growth next year, leaving a couple of uncomfortable years behind.