MacroScope

A jagged global recovery… but still no double dip

July 14, 2010

The latest Reuters quarterly economic outlook, based on surveys of more than 600 economists across Asia, Europe and North America smells a bit of danger.

cracked earth.jpgGrowth is looking very uneven. Inflation is a worry here but not there. Unemployment looks to remain perilously high.

It also has a whiff of the surveys Reuters conducted a few years ago just before the Great Recession set in, when economists were saying we’d all muddle through with a bit of a slowdown and don’t worry about a thing. How wrong they got that one.

Whether this latest case of shining optimism is just the economic forecasting community as usual running late to the party – or the train-wreck as was the case in 2007/08 – we don’t know. What we do know from past experience is the details tell us a lot but the consensus will turn out to be wrong.

The surveys have captured nicely the expectation of a slowdown from a punchy Q2 to the current quarter, particularly in the U.S., where the economic data have taken a decisive turn in the wrong direction on everything from housing to consumer confidence to jobs.

Fickle financial markets are focused on the new earnings season – a new kind of estimate they think will get beaten when the economic ones clearly won’t do. They don’t seem to care about a double-dip recession in the U.S. like they did a little over a week ago. And economists are still saying there’s just a 15 percent chance it will happen.

But there are more than a few worrying signs, not least of which is the sound of the creaking hinged doors swinging in the Last Chance Saloon. If we lose momentum on this one, there’s no more government money to throw at it.

And the enormous pile of borrowed money already spent is starting to bite through planned draconian budget cuts and impending tax rises across many economies to pay for it all.

This month, the spread of forecasts provided for 2011 U.S. GDP is the widest since Reuters started polling on it. That tells you uncertainty is on the rise. And a large majority of forecasters have also taken an axe to their Q2 and Q3 forecasts.

Even more worrying, the U.S. unemployment rate looks stuck above 9 percent for most of this year and next because there’s just not going to be enough growth to get it down.

Yet economists remain wildly optimistic about many Asian economies – possibly because they know that without China booming then there’s diminished hope we get a virtuous cycle of world economic growth.

The consensus is calling for 10 percent growth this year in China and 9 percent next. India’s not far behind at 8.4 percent and 8.5 percent, well ahead of 7.4 percent in the last fiscal year.

India’s got an inflation problem it seems, but China doesn’t. And neither do the rest of the world’s major economies, except for one.

British inflation will hold above the Bank of England’s 2 percent target through to the end of next year – a break with the BoE’s own view and a huge shift from a month ago which had a consensus for a dip below 2 percent by the second quarter of 2011.

Hardly a synchronous global recovery.

Comments
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These forecasts appear similar to what the IMF is saying – strong Asia and weak Europe. The uncertainty about the outlook for the US is also reflected in the FOMC’s forecast range for 2011 which is wide at 3.5-4.2% – but probably still too high.

Posted by IanBright | Report as abusive
 

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