Thursday 21 June 2018

US leads rich-world recovery as Europe lags

London, December 15, 2010

The United States will lead the rich world's economic recovery over the next two years while Japan and major European economies flounder by comparison, according to Reuters polls of more than 200 economists.

Backed by strong retail sales that rose for the fifth straight month in November, the poll showed expectations US consumers will step up demand, prompting a wave of upgraded forecasts for economic growth there.

By contrast, economists kept a sombre growth outlook for the euro zone and Britain, both in fiscal retreat, while in Japan they predicted a brief and sharp contraction in the current quarter followed by modest growth thereafter.   

"Three months ago the key issue for markets was whether the softness in economic activity was temporary or a sign of something more concerning," said Barclays Capital's Head of Research Larry Kantor in a research note.

"The vast majority of recent data readings, however, have made it clear that it was no more than a pause -- one that signalled a transition from the initial inventory- and stimulus-led surge in growth to a more sustainable, but still solid, expansion."    

The Reuters survey showed US gross domestic product growth averaging 2.7 percent next year, up markedly from the 2.3 percent seen in the November poll. Analysts expect the economy to pick up steam in each quarter through to the end of 2011.

While this would be one of the stronger growth rates among the rich G7 nations, emerging economies like China and India have shown far greater rates of expansion, with China in particular taking steps to control an overheating economy.   

Among reasons economists gave for upgrades to their US forecasts was the extension of tax cuts originally implemented by former President George W. Bush, as well a renewal of emergency jobless benefits and a 2 percentage point reduction in the payroll tax.

The poll was conducted after President Barack Obama struck a deal on taxes last week with opposition Republicans, a bill that looks headed to be passed overwhelmingly by the Senate on Wednesday.   

While the new fiscal plan has divided both political and economic opinion, analysts suggested it would support consumer spending next year, which accounts for around two-thirds of economic activity.

"A variety of factors, from the extension of tax cuts to expansionary monetary policy, from stabilisation on financial markets to healthy corporate balance sheets, suggests that growth will progressively accelerate during 2011," said Diane Swonk, economist at Mesirow Financial.

Still, respondents warned high unemployment still poses a significant risk to the US recovery, as does the risk that the euro zone debt crisis might escalate further and harm the global financial system.

Fears that debt-laden euro zone members like Portugal and perhaps even Spain might become the centres of new financial crises, coupled with broadening austerity measures, will likely keep a lid on euro zone growth for the next two years.

The poll showed quarter-on-quarter economic growth will linger between 0.3 and 0.5 percent in each quarter through to the end of 2012, as the bloc's periphery drags badly behind strongly-performing French and German economies.

"While the risk of a double dip for the euro zone as a whole has receded, recessionary conditions are likely to persist in those economies suffering the after-effects of the excesses of the pre-crisis era," said Ken Wattret at BNP Paribas.

The survey also revealed that next year European policymakers will probably need to increase the size of its 440 billion euros ($586 billion) share of the European Financial Stability Fund -- one of the mechanisms designed to restore confidence in damaged euro zone government finances.  - Reuters

Tags: US | growth | Economic Recovery |


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