Global Economy to Grow 3.7 Percent

IHS Global Insight says spillover from Europe’s woes remains ‘fairly small’

Europe’s fiscal troubles will produce five years of economic stagnation on the continent but won’t prevent the global economy from expanding by an estimated 3.7 percent this year after last year’s 1.9 percent decline, economists at IHS Global Insight said in a monthly update.

“Even as the Eurozone struggles to avert contagion from the sovereign debt crisis in Greece, the global economic expansion is moving forward,” said the report by IHS Global Insight Chief Economist Nariman Behravesh and economist Sara Johnson.

Bahravesh and Johnson said new data led them to raise growth forecasts for every region except Western Europe. They said that with aggregate real GDP rising at a 4 percent pace, the world economy will recover this quarter to its previous peak reached in 2008’s second quarter, but that Europe won’t reach its early-2008 peak till 2012 -- “meaning five years without progress.”

They said U.S. GDP growth is expected to rise from 3 percent in the first quarter to about 4 percent in the current quarter, but the waning fiscal stimulus and rising taxes will cause growth to taper off to 2.5 to 3 percent in the second half of 2010 and in 2011.

“The Asian consumer has become a locomotive of growth – but keep an eye on asset bubbles and overheating economies,” the report said. IHS Global Insight said it has revised its 2010 growth forecast upward to 11 percent for China and 8.1 percent for India.

IHS Global Insight reiterated its view that the spillovers from Europe’s woes “are still fairly small.” It said non-European banks have very limited exposure to sovereign debt issued by Greece, Portugal and Spain, but a weaker euro is hurting exports and earnings of Asian and American companies. On the other hand, the crisis has boosted demand for U.S. treasury bonds, contributing to lower interest rates and lower oil prices.

“Bottom line: The Eurozone crisis will barely dent growth in emerging markets (with the exception of Emerging Europe). The impact on the United States will also be relatively modest. All bets are off if the Eurozone breaks up or if multiple countries go through a messy default of restructuring.”

(Source:www.joc.com)