The world economy
Â¥ After falling by 1.5 per cent in 2009, world GDP will grow by 2.9 per cent in 2010. Â¥ The recovery will be driven by emerging economies led by China, whose GDP will expand by 9.2 per cent next year. Â¥ The Japanese economy will recover by 0.7 per cent in 2010 after shrinking by 7 per cent this year. Â¥ The Euro Area will grow by just 0.3 per cent in 2010 after declining by 4.7 per cent this year. Â¥ The US economy will expand by 0.6 per cent next year after contracting by 3.2 per cent in 2009. The world economy looks set to recover next year after the first decline in GDP since 1946. The recovery will be helped by a turnaround in global trade. After this year's extraordinary plunge of 10.1 per cent, world trade is now forecast to grow by 9.6 per cent in 2010. A recent improvement in lending conditions will support the upswing in developed economies. Yet even with this assistance the recovery will remain modest. Canada will head the G7 in 2010 with growth of just 1.2 per cent while Italy's GDP will fall again, by 0.5 per cent. Output in the OECD will rise by only 0.7 per cent next year. By contrast, growth in China will pick up from 7.1 per cent in 2009 to 9.2 per cent in 2010 à both more favourable outcomes than once feared. The economy is being boosted by a fiscal stimulus worth 5.6 per cent of GDP spread over two years. The pick-up in China will upport demand throughout Asia. That will bring much needed succour to Japan, the hardest-hit member of the G7. After declining by 0.7 per cent in 2008 and an astonishing 7 per cent this year, national output will rise by 0.7 per cent in 2010. The scale of the Japanese recession, easily the most serious since the Second World War, owes much to external factors as exports tumble by 27 per cent this year. Although exports are expected to rebound by 14.7 per cent in 2010, the recovery will be restrained by the strength of the yen, with net trade contributing only modestly to growth in 2010. The severity of the downturn in the Euro Area reflects the fact that Germany has been hit so hard, with an expected fall in output of 6.2 per cent this year. But other big economies in the Euro Area are also doing badly. Italy's GDP is expected to slide for three successive years, by 1, 5.2 and 0.5 per cent in 2008Ã10. And the Spanish economy will shrink by 4.5 per cent in 2009 and a further 1.5 per cent next year as the housing bust hits both investment and consumption. Despite a big fiscal stimulus and extreme monetary easing, the US economy will shrink by 3.2 per cent this year and pick up by only 0.6 per cent in 2010. The contraction is mainly because of a collapse in business investment, which will fall by 21.4 per cent this year, together with another huge decline in housing investment and a 0.9 per cent fall in consumer spending. Private consumption will shrink again in 2010 (though only by 0.1 per cent) à one reason why the overall recovery will be so feeble. A striking feature of the recession has been the poor performance of Japan and Germany. Although this has been blamed on both economies having big manufacturing sectors, our research suggests that their Achilles' heel was Germany's trade surplus and Japan's real exchange rate appreciation. Both countries have experienced small rises in unemployment, but they are exceptional in that, too. More generally in the OECD, the jobless rate has risen more than past experience would have suggested given the losses of output, notably in Spain but also in the US. Labour markets have responded in different ways, with some countries adjusting primarily through lower employment while in others average hours worked have fallen sharply.
Year of publication: |
2009-07
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Authors: | Fic, Dr Tatiana ; Liadze, Iana ; Holland, Dawn ; Barrell, Ray ; Hurst, Dr Ian |
Institutions: | National Institute of Economic and Social Research |
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