Continued from Part One.
We can’t see France or the southern states doing anything but drag the others in the EU down next year.
Nevertheless, across the pond the Fed’s QE3 program to purchase mortgage debt has created a boost to commodity prices; not a welcome development for most consumers, but it is to be hoped the rise in share prices will create a wealth effect that encourages consumers to spend again.
Certainly the EIU feels it will be broadly positive in stimulating growth — providing the electoral cycle allows a new Congress to avoid the US falling off this “fiscal cliff” the business media has recently been worrying over.
US economic growth was subdued at an annualized rate of 1.7 percent in the second quarter, and the EIU suggests soft jobs data in July and August mean prospects for the second half of the year are not particularly bright.
QE3 is unlikely to have a visible impact on growth until almost the end of the year, the EIU says, forecasting average GDP growth of 2.1 percent in 2012 and 1.9 percent in 2013.
We have been accustomed to China in particular and Asia in general driving the global economy even when the West stutters and the EIU does not see any change in that for this year or next.
China, however, is still slowing, although at a projected 7.8 percent this year it will have the lowest growth since 1999. Next year it may pick up to 8.6 percent if the recent stimulus measures are followed through and implemented.
India is expected to achieve barely 6 percent this year, which sounds optimistic when compared to anecdotal reports we are hearing on the ground. Still, Latin America appears to be on the rebound, led by Brazil – which may achieve 4 percent growth next year after just 1.5 percent this year.
The only beneficiaries of heightened oil prices will be the major producers in the Middle East, Russia and a few states in Africa. For the rest of the world, higher prices will have a depressing effect on growth as they always have done when they rise sharply, particularly for high net importers like Japan.
As with all good economics reports, the EIU’s is peppered with caveats (e.g. should the situation in the EU deteriorate or commodity prices spike further such as oil on the back of an escalation in Middle East tensions), but on the whole the report is cautiously positive for a better 2013 than 2012.
Not be much, mind you — but at least it’s up rather than down.