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World: Disappointment in Euroland
Tue, Mar 2 2010, 09:57 GMT
Despite many encouraging global indicators, there is considerable unevenness among regions. In the euro zone, the recovery is on a shaky footing. However, we doubt that the European difficulties will derail the global recovery. We maintain our outlook of 2010 global GDP growth in excess of 4%.
The economic news of the past month supports our 2010 U.S. growth forecast of 3.4%. Our optimism is based on a shift of support for the economy from the public to the private sector. We are confident that domestic demand will firm in the months ahead.
The pace of the Canadian economy is quickening. Employment growth remains strong, with the private sector adding 100,000 jobs in three months. Hours worked began the year in strength, auguring the steepest quarterly rise of labour input since 2007. The stage is set for robust Canadian growth in the coming quarters.
We doubt that the shakiness of the euro-zone recovery will derail the global expansion. Our outlook for world growth in 2010 is unchanged at 4%-plus.
The CPB reports world trade flows up very robustly in November, a rise of more than 1% for the second month in a row. Trade was still down 12% from the April 2008 peak, but was up 10% from last May. With international credit flowing again, further improvement can be expected in the months ahead. No surprise, then, that November industrial production showed an eighth consecutive monthly rise and the first 12- month rise since the Lehman Brothers collapse. The leading economic indicators suggest that industrial production growth could top 6% annually in the first half of the year.
Financial markets are worried that China may reverse its accommodative policies. In mid-December Beijing set a target ceiling of 7.5 trillion yuan (US$1.1 trillion) for new loans by Chinese banks in 2010. That would be down from 2009 but more than double the volume of 2008. At this writing, the rolling six-month volume of new loans will have to accelerate markedly from its December level to reach the target pace. Thus the lending cap seems unlikely to brake Chinese growth and we are staying with our expectation of a 4.1% expansion of global GDP this year. The IMF recently upgraded its own outlook to almost 4%.
With global recovery gaining momentum, commodity prices are unlikely to correct much. Stockpiles seem high for some commodities, but relative to industrial production they are well below recession peaks and will soon be drawn down by accelerating worldwide demand.