Following last week’s look at key trends that will shape the global economy this year and beyond, today I’m keeping my promise to have a look at how all this translates into hard figures. All based on the opinion of the International Monetary Fund (IMF), which published its latest World Economic Outlook Update as recently as last week.
This is a short summary of the key findings. For anyone interested, the full version including a big blue table is available here.
Emerging markets expected to boost global recovery
After a 0.8% contraction in real terms in 2009, the IMF expects the world economy to grow by 3.9% this year. This is a significant upward revision from the previous set of forecasts released in October, when the IMF had expected just 3.1% growth. In fact, the IMF states that “the global recovery is off to a stronger start than anticipated earlier”, largely thanks to an “extraordinary amount of policy stimulus” in many countries around the world. Next year, in 2011, the IMF expects the world economy to grow by 4.3%, roughly in line with the previous set of forecasts.
However, the recovery is “proceeding at different speeds in the [world’s] various regions”, as the IMF puts it. Specifically, in both years, global growth will receive its greatest boosts from emerging markets, such as China and India, while most industrialised nations will be busy creeping back into positive territory in a fairly painful style. With a special focus on the industrialised nations and hinting at the economic stimulus packages there, the IMF actually warns that policies need to remain “supportive where recoveries are not yet well sustained”.
(Please click on the chart to see a larger version of it.)
China and India to lead emerging markets
So, as usual, the world’s emerging markets will outperform the industrialised nations. Partly, that’s because it is mathematically easier to grow fast from a lower level. For example, if a poor man who owns one apple gets a second apple, his wealth grows by 100%. Whereas a rich man owning 100 apples and adding the same number of apples to his pantry, sees his wealth grow by only 1%. So far, so easy.
But apart from this statistical effect (which really mustn’t be underestimated), it is very clear that many emerging markets are growing in an incredibly dynamic fashion and continue to see amazing technical progress combined with higher productivity, rising incomes and – from a larger perspective – the creation of increasingly wide middle classes. “Buoyant internal demand” is how the IMF calls the phenomenon which continues to drive many emerging market’s vigorous economic activity.
In terms of hard numbers, the IMF thinks that the group of the world’s emerging and developing markets as a whole will grow their GDP by 6.0% in 2010 and by 6.3% next year, all in real terms.
The list of best performers again includes China (10.0% / 9.7%) and India (7.7% / 7.8%). The expectations for Russia continue to be weak, however, with last year’s disastrous 9.0% contraction not at all made up for by 3.6% growth this year and 3.4% next. Finally, Brazil – after a relatively small 0.4% contraction in 2009 – is expected to feature 4.7% growth this year and 3.7% next.
Industrialised nations to grow at one third of emerging markets’ pace
While the emerging markets are thought to grow by 6.0% and 6.3% this year and next, the prospects for the world’s advanced economies are much more moderate, at 2.1% and 2.4% respectively. As a rule of thumb, you could say that this year and next, the emerging markets will grow almost three times faster than the industrialised nations, according to the IMF’s current expectations.
These expectations are largely based on the observation that “there are still few indications that autonomous (not-policy-induced) private demand is taking hold” in the advanced economies.
Looking at individual countries and regions, with growth of 2.7% and 2.4% in 2010 and 2011, respectively, the US is expected to emerge from the recession much more dynamically than the Euro area (1.0% / 1.6%), partly thanks to “the unexpected strength in US consumption”, as the IMF puts it. This rebound is all the more surprising if we consider that the recession in the Euro area (-3.9% in 2009) was much sharper than its US counterpart (-2.5% according to the IMF, and -2.4% according to the latest national statistics), so many would expect a sharper downturn in Europe to be followed by a more dynamic rebound.
Within the Euro area, growth slightly above the group average is expected for Germany and France, among others, while Italy and Spain are expected to remain below the already-low line. In fact, Spain is likely to post another year of contraction in 2010, with a 0.6% decrease this year to follow last year’s hefty 3.6% contraction. Meanwhile, the UK economy is expected to grow by 1.3% this year and by 2.7% next, following its ugly 4.8% contraction in 2009.
And that’s it for today. Not sure what I’ll write about next week, I’ll simply keep monitoring global developments for anything interesting. Suggestions are always welcome. In the meantime, feel free to keep picking up small updates from my tiny Twitter corner.
Have a good week,