IHS Top 10 Economic Predictions for 2010: Emerging Markets Will Outpace Developed Economies
December 07 2009 - 8:30AM
Business Wire
Global GDP will grow only 2.8 percent in 2010, much better than
the 2.0 percent drop in 2009, but well below the 3.5-4.0 percent
trend rate of growth for the world economy, according to the Top 10
Economic Predictions for 2010 from IHS Chief Economist Nariman
Behravesh. Most emerging markets, particularly Asia, will outpace
the developed economies next year. The U.S. economic recovery will
begin the year slowly, but Europe and Japan will rebound even more
slowly.
Behravesh and experts at IHS Global Insight, the world's leading
company for economic and financial analysis and forecasting,
utilize proprietary economic models developed over more than 45
years to develop the annual list of Top 10 Economic
Predictions.
The Top 10 predictions:
1. The U.S. Recovery Will Start
Slowly. IHS Global Insight expects U.S. growth to be stuck in a
2.0–2.5 percent range for much of 2010. While housing and capital
spending on equipment are expected to show respectable gains, with
consumer spending rising just 1.8 percent, stronger gross domestic
product (GDP) growth will be impossible. One of the biggest drags
on spending by households will be the unemployment rate, which
should move up to around 10.5 percent during the first quarter.
2. Europe and Japan Will Rebound More
Slowly Than the United States. Europe and Japan suffered
through deeper recessions than the United States and are likely to
see more modest recoveries. The Eurozone and the U.K. economies are
expected to grow 0.9 percent and 0.8 percent, respectively, in
2010. Some West European economies—Iceland, Ireland, and Spain—will
continue to contract next year as the aftershocks of the housing
bubbles and financial crises take their toll. Japan, on the other
hand, will do better with GDP growth of 1.4 percent.
3. Most Emerging Markets—Especially in
Asia—Will Outpace the Developed Economies. Growth in all the
emerging regions will recover in 2010 and, with the possible
exception of Emerging Europe, will outpace the United States,
Europe and Japan. Non-Japan Asia will be at the forefront with GDP
growth of 7.1 percent. Latin America, the Middle East and Africa
will see gains in the 3–4 percent range. The laggard will be
Emerging Europe, which will expand only 1.7 percent.
4. Interest Rates in the G-8 Economies
Will Remain Very Low. While some central banks (notably in
Australia, Israel, and Norway) have already started to raise
interest rates, the Federal Reserve, European Central Bank, Bank of
England and the Bank of Japan are unlikely to raise rates before
the third quarter of 2010. Nevertheless, some Asian central banks,
notably the Reserve Bank of India and the People's Bank of China,
may pull the trigger sooner—in the first or second quarters.
5. Fiscal Stimulus Will Begin to
Ease. Aggressive fiscal stimulus by some countries (especially
the United States and China) helped to cushion the blow of the
financial meltdown a year ago. With that crisis now over, though,
most countries have no plans for further stimulus and some are set
to tighten (e.g., the January boost in the value-added tax in the
United Kingdom). Even in the United States, where there is talk of
a second stimulus package, there is no money for anything more than
a symbolic attempt to relieve some of the pain from job losses.
6. Commodity Prices Will Move
Sideways. The extent of the recent rise in commodity prices
cannot be justified, given the slow pace of the recovery. Some of
the increase can only be attributed to investor activity. As such,
IHS Global Insight and IHS CERA believe that oil and other
commodity prices will likely soften in the coming months.
Specifically, oil prices are expected to fall from current levels
(in the $75–80/barrel range) to around $65 by next spring, before
gradually moving above $70/barrel by the end of 2010 as the global
recovery picks up steam.
7. Inflation Will (Mostly) Not Be a
Problem. In most regions of the world, inflation will remain
tame. Rising unemployment rates will put a big damper on wage
increases and large amounts of excess capacity worldwide will limit
the ability of businesses to raise prices. The only inflationary
pressures will be in countries that are growing rapidly (mostly in
Asia) and countries that peg (or closely tie) their currencies to
the dollar (principally in the Middle East and Asia).
8. After Improving for a While, Global
Imbalances Will Worsen Again. The deep U.S. recession was a key
factor in the current-account deficit plunging from more than $700
billion in 2008 to near $450 billion in 2009. Nevertheless, IHS
Global Insight expects this deficit to widen by about $90 billion
in 2010. Some of this is because the U.S. economy will be growing
faster than most other developed economies. However, continuing
dependence on export-led growth in several large economies (e.g.,
Germany, China, and the rest of Asia) is also a factor.
9. While the Dollar May Strengthen a
Little, It is on a Downward Glide Path. Given the slightly
better prospects for the U.S. economy, relative to those of Europe
and Japan, the dollar is likely oversold. This means that there
could be a slight appreciation in the coming months. However, given
that the progress on reducing global imbalances has been temporary,
the downward pressure on the dollar will continue. This downward
movement is likely to be the greatest against emerging-market
currencies because of stronger growth prospects in those
economies.
10. The Risk of a "Hard W" is Still
Uncomfortably High. There is about a one-in-five chance of a
double-dip or "hard W" downturn. This could be triggered by any
number of factors, including a premature tightening of fiscal
and/or monetary policies, a major retrenchment of consumer spending
in the face of rising unemployment, a sharp and sustained rise in
oil prices (either because of a supply disruption or increased
speculative activity), and the failure of a few large financial
institutions. It would probably take some combination of these
factors to drag global growth back into negative territory.
About IHS Global Insight
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