A Collective Sigh of Relief - Deloitte

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2 Global Economic Outlook Q2 2012 We’re several months into the year 2012, and things are beginning to look less dire than the last few months of 2011. In Europe, a second bailout of Greece has at least postponed disaster. Plus, action by the European Central Bank may have averted a deeper downturn. In the United States, growth continues at a modest pace, but signs of trouble have not completely gone away. And in China, the economy appears likely to avoid a hard landing. While there is no cause for celebration, business leaders can at least utter a collective sigh of relief that things are not worse. In this issue of the Global Economic Outlook, we take a close look at the factors driving the global economy. We begin with Dr. Alexander Börsch’s analysis of the Eurozone. The title of his article — “Could this be the turning point?” — draws attention to the fact that things are not as bad as some had predicted. He notes that four major decisions in Europe in recent months have improved the outlook, reduced the risk of catastrophe, and moderated the severity of the recession. In addition, Alexander takes a close look at what may be required in order for Greek membership in the Eurozone to be sustainable. Next, Carl Steidtmann maintains his relatively pessimistic stance on the U.S. economy. He says that some of the data points that appear to herald improvement are really rather ephemeral. For example, he notes that economic activity has been boosted by good weather, temporary tax incentives, and inventory rebuilding — hardly the stuff of sustainable recoveries. He also points out some of the unintended consequences of the Fed’s monetary easing. Finally, while Carl acknowledges that modest growth can continue for some time, he cautions that there are many “fat tail” geopolitical risks that could pull the United States into another downturn. Also included in Carl’s article is an analysis of oil prices and their impact on economic activity. In our third article, I take a look at China’s economic outlook. I discuss how Chinese government policy has been effective in partially offsetting the negative external headwinds faced by China’s export sector. The result is likely to be a soft landing this year. However, China continues to face longer-term challenges, some of which are being pushed further down the road by the failure to address them in the short term. Next, Ian Stewart examines the UK and concludes that the economy is doing far better than earlier thought, but its performance in 2012 is still expected to be relatively poor. Ian examines the Deloitte UK CFO Survey and finds that business leaders have significantly improved their perceptions and expectations. This should have a tangible effect on economic activity. Ian also notes that a combination of easier monetary policy and the lessening of crisis in Europe will likely help the UK to avoid recession in 2012. Siddharth Ramalingam then provides his outlook for the Indian economy. He notes that the central bank is caught between a rock and a hard place. That is, the central bank must worry about uncomfortably high inflation as well as decelerating growth. In addition, a large fiscal deficit means that the government has few policy options to deal with a dete-
iorating situation. Siddharth concludes that an easing of monetary policy will likely be the eventual outcome. My outlook for Japan begins by discussing problems related to Japan’s trade balance, fiscal policy, and currency. Given these issues, it would seem natural to expect economic weakness. Yet I conclude that things will likely get better in 2012 for several reasons: a more aggressive monetary policy, a weaker yen, higher inflation, and more government spending on reconstruction. In the outlook for Brazil, I note that although Brazil has experienced a deceleration, growth is expected to rebound later this year. A loosening of monetary policy and a boost to investment in infrastructure and energy should help to offset the negative external headwinds. I also discuss Brazil’s complaints about the impact of U.S. and EU monetary policy on the Brazilian exchange rate as well as global concerns about Brazil’s protectionist policy initiatives. In my outlook on the Russian economy, I note that there are several conflicting factors influencing growth in Russia, and that the economy in 2012 is likely to grow more slowly than in 2011. I also discuss the uncertainty surrounding the future of Russian economic policy and how the choices made by policymakers will determine future growth. Next, Pralhad Burli offers a view on the economy of Indonesia, the world’s fourth most populous nation and one that has lately attracted much attention for its strong growth and positive prospects. Pralhad discusses the resilience of this interesting economy and how, despite a variety of obstacles, it is likely to see strong growth in the coming years. Finally, Neha Jain and Satish Raghavendran look at global trade patterns. They note how, with rising wages and a rising currency in China, the world’s most populous nation may no longer be the “world’s factory.” Rather, global trade patterns are changing in interesting ways. Of most interest is the rising role of Africa and the Middle East in global trade. Dr. Ira Kalish Director of Global Economics Deloitte Research We are conducting a survey is to determine the level of reader satisfaction of Deloitte’s Global Economic Outlook. The survey results will help us understand your needs and modify our product to better serve them. We ask that you provide your candid feedback. Your responses will remain anonymous. The survey will take only 5–10 minutes to complete. You can access the survey by clicking on this link or by pasting it in the address bar of your internet browser: https://survey.deloitte.com/wsb.dll/10475/GEOsurvey.htm Thank you for sharing your opinions. Global Economic Outlook published quarterly by Deloitte Research Editor-in-chief Ira Kalish Managing editor Ryan Alvanos Contributors Pralhad Burli Alexander Börsch Neha Jain Satish Raghavendran Siddharth Ramalingam Carl Steidtmann Ian Stewart Editorial address 350 South Grand Street Los Angeles, CA 90013 Tel: +1 213 688 4765 ikalish@deloitte.com 3
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Page 5 and 6: 32 34 36 40 32 Brazil: Worried abou
Page 7 and 8: Figure 1. Use of ECB's deposit faci
Page 9 and 10: Figure 2. Economic Sentiment Indica
Page 11 and 12: competitiveness is based on product
Page 13 and 14: USA Geographies 13
Page 15 and 16: Figure 3. Average price of regular
Page 17 and 18: Figure 5. Equally weighted coincide
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Page 25 and 26: hardly been eliminated. From the hi
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Page 29 and 30: At a time when the government can i
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Page 43 and 44: Trade patterns of the future: Wakin
Page 45 and 46: Yield curves (as on April 6, 2012)*
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