With metals prices being driven so much by fears about the global economy, we can perhaps be excused for concentrating so closely on economic developments week by week.
The last six months have been a dramatic turnaround from the optimism that still prevailed in many quarters towards the end of last year. Growth was slowing in some areas, but with the exception of Europe, investors were viewing most parts of the world in a relatively sanguine manner and taking positive support from the gradual recovery in the US, particularly among manufacturers.
Six months on the mood is much more pessimistic, even in the US, and metals prices have reacted accordingly, showing pronounced falls from the end of the first quarter. So when the Economist Intelligence Unit (EIU) brings out a forecast for the global economy, it deserves even more attention than such well-researched work would normally earn.
The positive side is that the EIU is forecasting the global economy will continue to grow, albeit at a slower 3.2 percent rate in real terms during 2012. Still, this is down from 3.7 percent in 2011 and a blistering 5.1 percent in 2010, when extraordinary stimulus programs boosted growth for an all-too-short period of time.
However, as we mentioned above, global growth stalled in the second quarter, led by falls in many emerging markets and precipitated by both a slowing Chinese economy and debt woes in Europe.
This week, Cyprus has become the fifth EU country to require a bailout of some form, underlining, in the EIU’s opinion, that Europe has reached a potentially calamitous new stage. Not surprisingly, the EIU is forecasting a contraction in the EU of 0.7 percent this year and weak growth of just 0.3 percent next year, with the caveat that in the event of a break-up, even an exit by one or two countries, the downside will be much worse.
In the US, where the economy has been doing comparatively well, recent data such as job starts is showing a softening. GDP growth in Q1 was revised down to 1.9 percent from 2.2 percent previously, but the EIU is maintaining a forecast of 2.2 percent for the year as a whole, although they advise the risk is to the downside.
Among emerging markets, Asia probably has the best prospects, although weak global demand will challenge export-orientated economies. While China may achieve 8.4 percent growth this year, the EIU expects India will slump to 6.4 percent. Latin America will be even lower, with previously buoyant Brazil struggling with rapidly falling GDP, downgraded from 3.3 percent to 2.2 percent this year, but the region as a whole is still expected to recover to 3.9 percent growth in 2013.
The EIU has summarized its growth expectations through 2016 in the table found at the link below: