Global Growth Should Slow To 4.0% In 2011-12 -State Street GA
October 05 2011 - 2:37PM
Dow Jones News
Global growth is slowing this year and next, and the U.S.
recovery is expanding at about one-third the pace seen in a normal
recovery, according to forecasts from State Street Global
Advisors.
"So far, the recovery has been a huge disappointment," said
Christopher Probyn, State Street GA's chief economist at a luncheon
in New York Wednesday. State Street Global Advisors handles the
asset management business of State Street Corporation (STT).
In past business cycles, Probyn said, the strength of the
recovery is related to the decline of gross domestic product during
the recession. By that measure, real GDP should have grown at an
annual rate of 7.5% in the first years of this upturn.
Instead growth is running about one-third of that, a large
explanation why unemployment has not come down much since the
recession ended in June 2009, says Probyn.
The reason for the subpar recovery is that the last recession
triggered a severe loss of household wealth that prompted consumers
to lift their saving rate rather than spend more. The shift has
limited gains in consumer spending and weakened housing
activity.
The U.S. will not see full employment return to 2015 or later,
according to the State Street GA forecast.
The firm's global outlook calls for growth slowing from over
5.0% in 2010 to about 4.0% in 2011 and 2012. But the recovery will
remain split.
Developing economies will see robust growth with inflationary
pressures building. As a result, their economic policy will
tighten.
The advanced economists will remain sluggish with stable
inflation rates, leading to extremely accommodative policy.
Probyn expects the dollar to weaken on the currency markets,
except against the euro.
He points to "soggy" U.S. economic fundamentals and an
"extremely dovish" Federal Reserve that is trying to stimulate
growth as reasons to expect the dollar to fall.
The exception, however, is the dollar's value versus the euro.
State Street GA projects the euro zone's economy to grow 1.6% this
year and only 1.1% in 2012. Given the expected growth slowdown, the
European Central Bank is expected to stop tightening, even though
zone inflation is above the ECB's target.
The euro zone will be hobbled by the festering debt crisis. The
forecast says chances of a Greek default early in 2012 are rising
and the eventual haircut on Greek debt will be between 60% and
80%.
Portugal will probably follow Greece into default but both
nations will stay in the euro zone, says State Street GA.
-By Kathleen Madigan, Dow Jones Newswires; 212-416-2466;
kathleen.madigan@dowjones.com
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