OTTAWA, March 6, 2013 /CNW/ - China and Brazil will shine, Europe and Japan will lose ground, and growth in the United States will remain hostage to political confrontations, according to The Conference Board of Canada's World Outlook: Winter 2013.
Overall, the world economy will post growth of about 2.6 per cent this year, much the same as in 2012.
Although emerging markets led by the Asia-Pacific region should grow strongly this year, much of the developed world has been dragged lower by the downturn in the eurozone. The modest growth in the U.S. economy is at risk due to automatic budget cuts that were implemented in early March.
"The seemingly endless economic problems in Europe have dragged down the entire world economy, primarily through capital and financial markets. Also, the slowdown in export demand from many eurozone countries hurt economic growth in emerging markets. Fortunately, the outlook for emerging markets has improved in early 2013, which will enable the global economy to at least continue to expand, albeit at a tepid pace," said Kip Beckman, Principal Economist.
The European Union and European Central Bank took aggressive action last year, confirming that they will do what they must to preserve the common currency. These steps lowered the pressure on the European financial system and banks. Nevertheless, the Conference Board expects real GDP in the eurozone to contract by 0.1 per cent this year, the second consecutive year of decline. Due to fiscal austerity, recessionary conditions will persist this year in many countries, including Italy, Spain, and Greece.
The United States managed to avoid tumbling over the fiscal cliff in January, but the President and Congress could not reach agreement to avoid the spending sequester that kicked in on March 1. As a result, $85 billion in cuts to government spending will take place this fiscal year. Also, a decision to lift the debt ceiling must be addressed by the end of March. The U.S. Outlook calls for growth of a tepid 2.3 per cent this year - although a political agreement to tackle the country's fiscal challenges would give cause for higher-than-forecast growth.
Public investment in infrastructure and a recovery in demand for high-technology goods and services are boosting industrial production in many Asia-Pacific countries. Excluding slumping Japan, real GDP in the region will expand by 6.6 per cent, up from a gain of around 6 per cent last year. Japan finds itself in yet another recession—the fifth in the last 15 years - due in part to the approaching end of government spending on earthquake reconstruction.
Most economies in the Latin-American region started to pick up speed at the end of last year. Venezuela, however, could easily slip into recession this year if the death of President Hugo Chavez continues to paralyze economic decision-making in the country.
Latin America will benefit from mining investment and a rebound in economic growth in Brazil, the region's most powerful economy. The Brazilian economy is expected to expand by 3.4 per cent this year, due in part to infrastructure preparations for the 2014 World Cup of soccer.
Listen to audio commentary by Kip Beckman about the World Outlook.
SOURCE Conference Board of Canada