Academic journal article The Journal of Business Forecasting Methods & Systems

The World Economy in 2011

Academic journal article The Journal of Business Forecasting Methods & Systems

The World Economy in 2011

Article excerpt


I. Short-term Indicators and Forecasts

Economic reports with historical data revisions and current statistics indicate that the global upswing is still going on, but it has lost speed in some major industrial countries and may be in danger of coming to a standstill. As output growth rates felt back from their unexpectedly strong pace earlier in the year and monthly sentiment indicators signaled a loss of momentum, the probability of a double dip scenario in the global business cycle has increased. The loss of momentum has consequently led to increased pessimism in the financial markets, weakness in equity values and reduction in wealth - a major driver of consumer spending.

In the United States, the revised output numbers reveal that the economy contracted for three consecutive quarters last year. The recent U.S. recession was one of the mildest on record, with real GDP down just 0.6% from peak to trough. Timely and aggressive monetary and fiscal stimulus allowed U.S economic growth to bounce back in the fourth and first quarters, by 23% and 5.0%, respectively. Economic activity, however, almost stalled in the second quarter as growth registered an anemic 1.1% annual rate.

The Canadian economy advanced in the second quarter at an impressive 4.3% annual rate of growth, following a 6.2% jump in the first quarter. Mexico, the third member of NAFTA, climbed out of its own recession during the second quarter, posting a 2.1% rate of economic growth after three quarters of negative output growth. The optimistic numbers from Canada and the encouraging signs from Mexico stand in stark contrast to the sluggish economic performance in Europe.

In the Euro zone, the economy grew by 1.2% annual rate in the second quarter of 2002, slowing from a 1.6% rise in the previous quarter, after an output decline in the fourth quarter of last year. Updated statistics in Japan - after an overhaul of the national accounts - indicate that economic activity rose by an annual rate of 2% during the second quarter of 2002, following a zero growth performance in the previous quarter and three consecutive quarterly declines in 2001.

Our forecast assumes that fundamental economic forces will gradually bring global growth back on track as the world is expected to enter a period of stability in financial markets and geo-politics. We expect daily news about illegal corporate business practices In the United States to subside. A possible military activity in Iraq will adversely affect oil prices and consumer confidence but it could be partially offset by fiscal stimulus from increased defense expenditures, considering a quick resolution in the conflict.

The baseline short-term global economic forecast incorporates the expected effects of recent events. We believe that current expansionary fiscal and monetary policies as well as flexible financial markets will continue to fuel the recovery. Based on the fundamental growth dynamics of technology and international trade, we continue to place low probability on a double-dip global recession.

The forecast also incorporates the major findings of the World Economic Survey conducted by the Ifo Institute in the third quarter of 2002. About 1000 executives from 90 countries have indicated a slight deterioration in the overall economic situation. A composite measure of business executives' assessments indicates that worldwide economic conditions slipped in the third quarter, after having risen in the previous two surveys. The major findings of the recent survey are as follows:

The decline in the overall outlook of global economic activity resulted exclusively from more cautious expectations for the next two quarters, whereas the evaluations of the current economic situation were higher than in the previous survey. In most countries, the recovery in the hard-hit business investment sector is still expected to be somewhat more pronounced than in private consumption. …

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