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ANALYSIS

World economy 'at crossroads'

Dubai, November 13, 2012

 

The world economy is at a crossroads, with every major region of the world at a potential turning point, according to a new report.
 
Deloitte’s newly-released Global Economic Outlook Q4 2012 says leaders around the globe are now faced with challenging decisions.
 
For the Eurozone, contrary to more apocalyptic predictions made during the summer months, early autumn has been a comparatively quiet time. However, this situation is not a reliable predictor of future events, it says. 
 
Part of the difficulty in solving the euro crisis, according to the report, is due to the fact that there is no clear vision about where the Eurozone is heading in terms of governance structures and architecture. 
 
Dr Alexander Borsch, head of economics & research at Deloitte Germany, suggests that, other than collapse, the Eurozone has four options to move forward. These range from modest efforts to enforce existing constraints through an improved version of the Maastricht Treaty, to full scale integration in the form of a political union. However, he says, the most consistent options of the four are ambitious. 
 
 “The Maastricht 2.0 would need to address and overcome obvious weaknesses in the old institutional architecture, while the formation of a political union would imply a transfer of authority unseen in the history of the nation-state with many foreseeable and unforeseeable challenges. The main issue, however, is what the preferred option for the future of the Eurozone actually is,” Dr Borsch said.
 
Other key findings from the Deloitte Global Economic Outlook Report include:
 
United States: Uncharted waters: The US economy has benefitted from a combination of luck and resilience, and ongoing anemic growth in the US is historically unprecedented. A wide range of factors, including fiscal policy, headwinds from Europe, and risky monetary policy may loom over the US economic outlook into 2013.
 
China: When exports decline: The current policy regime may continue to boost economic output in the coming months, paving the way for a soft landing. Uncertainty pertaining to China’s economic outlook stems from the policy choices that will be made by the country’s incoming leadership.
 
UK: Turning the corner, slowly: The United Kingdom’s double dip recession is likely coming to an end, but myriad internal and external problems remain, which could result in a shaky and tepid recovery. 
 
Japan: An elusive recovery: External headwinds, a highly valued currency, continued deflation, stagnant consumer spending, and declining real wages are hindering Japan’s economic recovery. Furthermore, despite falling prices, the government has decided against expanding its policy of quantitative easing, and a political dispute with China is having a negative impact on Japan’s industrial economy.
 
India: Cautious optimism: Uncomfortably high inflation, external headwinds, and an uncertain policy environment are adding downside risk to India’s economy, which is operating below its potential. The government has proposed several reforms that could improve long-term growth, but political opposition is adding a dose of uncertainty to India’s economic outlook.
 
Russia: Slowing down: Despite a global economic slowdown, Russia’s central bank decided to tighten monetary policy in an attempt to curtail inflation. This may lead to a slowdown in growth.
 
Brazil: Chasing growth: Brazil’s central bank decided to focus on growth rather than inflation, which will likely result in stronger growth next year. The US monetary policy could have a significant impact on Brazil’s exchange rate.
 
Korea: S(e)oul searching: South Korea has achieved an enviable level of affluence, but weakening export demand and excessive consumer debt may put the brakes on economic growth. In the longer term, South Korea may need to consider a move away from manufacturing in favor of developing a service-based economy. – TradeArabia News Service
 



Tags: World Economy | Deloitte |

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