The IMF has very recently lowered its growth estimate for the global economy to 3.3 per cent and 3.6 per cent for 2012 and 2013 respectively and cautioned that any revisions to the outlook would likely be lower in future. Domestically the US economy grew at a tepid 1.3 per cent in the third quarter, revised lower from the initial estimate of 1.7 per cent. The US real GDP growth is likely to be weaker in the first half and stronger in the second half. Growth in the early part of 2013 is likely to be restrained by the effects both of fiscal uncertainties and of some actual fiscal tightening. Fiscal consolidation of one per cent to 1.5 per cent of GDP for 2013 will prove more likely than the fiscal tightening of five per cent of GDP for 2013 which would occur if the entire fiscal cliff took place and was not modified for the entire year.
If the US goes over the fiscal cliff and does nothing about it for the 365 days of 2013, the calendar 2013 fiscal tightening of five per cent of GDP would be very likely to generate a recession. The economic impact would be much smaller if the US legislate a postponement of the fiscal cliff in the last days of 2012 or goes over the fiscal cliff followed by an agreement to fix it several days later. If the tax hikes and spending cuts of the fiscal cliff do go into effect, the odds that they will be ameliorated within a few days are quite high. As fears of the fiscal cliff have grown, corporate decision-makers have shown a tendency to postpone the placement of capital spending orders.
House Republicans have offered their own proposal in the heated battle to avert the so-called fiscal cliff, but it was quickly rebuffed by President Obama’s administration for not demanding more from the nation’s wealthiest taxpayers. The GOP plan promises $2.2tn in deficit savings over the next decade, including $800bn from tax reform, $600bn from Medicare reforms and other health savings and $600bn in other spending cuts. It also pledges $200bn in savings by revising the consumer price index, a measure of inflation.
According to the Congressional Budget Office, if Congress and the White House fail to reach a compromise on the budget and taxes, the
economy will go over the fiscal cliff into a recession. By mid-year, the forecasters anticipate the situation in Europe will stabilise. Once that happens, economic growth will begin to improve and by the end of the year, the GDP will be growing at a three per cent annual rate. For the year as a whole, GDP will grow 2.4 per cent, up from an expected 1.9 per cent in 2012. One main driver of the economy in 2013 will be the improving the US housing market.
Chief Economist at Goldman Sachs Group Inc. estimates that the economic crisis will come to an end in 2013, meaning that 2013 will be the last year of lower than trend growth in the US. After 2013, the US economy will return to annual growth of over three per cent and a process will begin of revering in the private sector. The year 2013 is likely to be a more extreme version of 2010-2012, with a bigger positive private sector impulse that is offset by a bigger negative public sector impulse but still leaves growth around trend. The US economy grew at an annualised rate of 2.7 per cent in the third quarter of the year. The figure is significantly higher than the two per cent initial estimate of the commerce department.
The US budget deficit fell sharply in fiscal 2012 to $1.1tn, but remained at an uncomfortably high ratio to the size of the economy, according to the Treasury. The fiscal shortfall topped $1tn for the fourth straight year, but dropped from $1.3tn in 2011, as the Obama administration answered deep pressure to narrow the shortfall. The deficit came in at seven- per cent of GDP, a level economists say is unsafe, but down from 8.7 per cent of GDP in fiscal 2011. As of 2012, the US debt is larger than the size of the economy. The debt ceiling is currently set at $16.45tn. Every man, woman and child in the United States currently owes $53,804 for their share of the US public debt.
Japan’s economy shrank in the September quarter for the first time since last year, adding to signs that slowing global growth and tensions with China are nudging the world’s third-largest economy into recession. The 0.9 per cent fall in GDP was in line with expectations, although a decline in capital expenditure was much steeper than forecast. The fall in GDP translated into an annualised rate of decline of 3.5 per cent. While US growth showed a modest pickup in the third quarter, Japan and the eurozone economies are shrinking. Japan’s GDP is now expected to expand by 1.6 per cent this year and 0.7 per cent next year, down from earlier projections of two per cent and 1.5 per cent, according to the OECD. The IMF’s latest global economic outlook now believes that Japan will grow 2.2 per cent in 2012 and 1.2 per cent in 2013.
Politicians have been calling for more action from the Bank of Japan to end deflation. Core consumer prices were flat in October. That is well off the central bank’s target of one per cent. The BOJ also lowered its forecast for CPI Inflation to negative 0.1 per cent from positive 0.2 per cent in 2012 and to 0.4 per cent from 0.7 per cent for 2013. Analysts say stagnant or falling prices discourages consumer spending, a major driver of growth. The only positive set of data came from the industrial output figures which showed a 1.8 per cent rise. Analysts were expecting a fall of 2.2 per cent. The GDP data confirms that the economy has fallen into a recession. It is set for a second straight quarter of contraction in the current quarter. Many analysts expect the BOJ to leave policy unchanged at a review in the coming week, but some see it boosting stimulus again at a December 19-20 meeting, shortly after the US Federal Reserve is due to meet.
Japan’s economy outperformed most of its Group of Seven peers in the first half of this year on robust private consumption and spending for reconstruction following last year’s earthquake. But growth has stalled since then. Indeed, second-quarter growth was revised down in the latest figures by half to just 0.1 per cent. The last quarterly economic contraction was in the October-December period of 2011, when GDP fell 0.3 per cent. With the economic effect of rebuilding from last year’s earthquake and tsunami fading, the government acknowledged last week that its index of leading indicators gauge fell to a level suggesting the onset of a recession. While, the BOJ is expected to pursue powerful policy easing, the government should boost the economy’s growth potential with deregulation and structural reforms.
Japanese lawmakers approved another stimulus package to revive growth, as the flagging economy becomes a key issue in the upcoming general election. The money, totalling 880bn yen ($10.7bn), will be used mainly to create employment and support small businesses.
Analysts fear that the stimulus is unlikely to improve economic conditions.
The total size is not enough to really boost GDP, especially for early next year. That led some to predict the economy may have hit its lowest point and could start recovering. The new package is expected to generate a two- per cent rise in GDP and 1.4 to two million jobs. This new stimulus package is Japan’s fourth in less than eight months, but is sorely needed with its massive export-dependent economy in the doldrums.
The OECD has warned in its latest Economic Outlook that global growth is set for a sharp slowdown next year and the eurozone debt crisis remains the greatest threat to the world economy at present. The organisation has slashed its forecast for growth in 2013 and cautioned that the risk of a serious global recession cannot be ruled out. It now expects growth of 1.4 per cent next year, down from 2.2 per cent forecast in May. Growth in the US is forecast at two per cent next year, down from a May estimate of 2.6 per cent. Japan’s economy is expected to expand 0.8 per cent, little more than half the growth expected in May. The eurozone economy is tipped to contract by 0.4 per cent this year and by 0.1 per cent next year. That compared with the earlier OECD estimate of a decline of 0.1 per cent this year and growth of 0.9 per cent in 2013.
Standard Chartered Bank group has released a report providing a global economic overview. It expects the world economy to strengthen in 2013, particularly in the second half, after two years of slowdown. The forecast reveals 2.8 per cent growth in 2013 after 2.6 per cent in 2012, with Europe still the main area of weakness. It warned that the biggest risk is a failure by the US Congress to smooth out the ‘fiscal cliff’, triggering a US recession. A budget agreement will allow stronger US growth, particularly in the second half of this year. Europe will gradually pull out of recession while China’s growth is set to stay in the 7-8 per cent range. Emerging markets will still face a fairly weak global environment, but widespread monetary easing in 2012, combined with a gradual pick-up in China should lead to a general firming of growth.
After softer-than-expected activity during 2012, growth has begun picking up in the emerging-market economies, with increasingly supportive monetary and fiscal policies offsetting the drag exerted by weak external demand. China is expected to grow at 8.5 per cent in 2013 and 8.9 per cent in 2014, while GDP is also expected to gather steam in the coming years in Brazil, India, Indonesia, Russia and South Africa. The commodity prices are likely to firm, supported by strong liquidity and a pick-up in the global, and particularly China’s economy. Labour markets remain weak, with around 50 million jobless people in the OECD area. Unemployment is set to remain high or even rise further in many countries unless structural measures are used to boost near-term employment growth. The euro area crisis remains a serious threat to the world economy, despite recent measures that have dampened near-term pressures.
Global economic growth is expected to pick up slightly in 2013 compared to this year, but the eurozone is tending towards stagnation and the downward risks to the global outlook remain significant, according to a report by Atradius. It predicts that global economic growth will increase by 2.6 per cent this year to 2.8 per cent in 2013 as Western Europe climbs out of recession and emerging economies regain momentum. The eurozone economy will only grow by 0.2 per cent while Latin American growth increases by 3.8 per cent and Asian growth stabilises at 4.9 per cent. The US continues its weak recovery with projected growth of 2.1 per cent. The main driver of the global economy in the period ahead is still growth in Asia and Latin America. Emerging economies continue to catch up with advanced countries and grow in economic importance. In line with our previous forecast, trade growth is expected to be two per cent this year and keep that pace in 2013.
Meanwhile, the rate of contraction in the euro-zone economy eased slightly in November, according to a closely-watched survey. But the region is still in line for another quarter of recession with further contraction likely in early 2013.There were few signs that the eurozone would climb out of recession any time soon. The region still looks set for further contraction in the early months of 2013, as weak consumer demand in many countries combines with low levels of business confidence and falling global trade. Inflation in the eurozone declined to 2.2 per cent in November from 2.5 per cent in October. The ECB seeks to hold inflation to about two per cent.