Asian Giants to Lead Global Economic Recovery in 2010

The Jakarta Globe, Viorel Urma

International organizations see the world economy resuming growth next year, but caution that unemployment may continue to rise as job creation lags in the West and Japan. (AP Photo)

New York. Barely avoiding a 1930s-style depression, the world economy is expected to rebound in 2010 with Asian economies continuing to lead growth.

Among the industrialized nations, the United States, where the financial system and labor market are showing signs of stabilization, will outpace Europe where stubbornly high unemployment is likely to sap the strength of recovery.

According to the International Monetary Fund’s World Economic Outlook, global output is expected to grow by 3.1 percent in 2010, with much of the recovery driven by emerging economies, such as India and China, where the manufacturing industry expanded at the fastest pace in 18 months in October.

For 2009, the IMF expects a 1.1 percent decline of global gross domestic product.

But though things may not be as bad as they could have been, the IMF sought to temper any euphoria, largely because unemployment will likely continue to rise for some time.

“Today the storm has passed. The worst has been averted. And yet the economy remains very much in holding pattern — stable, and getting better, but still highly vulnerable,” IMF managing director Dominique Strauss-Kahn said.

The United Nations expects the world economy to resume growth in 2010, but it warned that the recovery would be fragile.

In a preview of its annual economic forecast, which will be released in January, the UN credited the massive fiscal stimulus measures by governments worldwide since late 2008 for the expected rebound.

It recommended that these stimulus measures be continued — at least until there were clearer signals of a more robust recovery in growing consumption, more private investment and rising employment rates around the world.

On the plus side, the UN report, “World Economic Situation and Prospects for 2010,” cheered increased industrial production, a rebound in global equity markets and a healthy rise in international trade.

“This is an important turnaround after the free fall in world trade, industrial production, asset prices, and global credit availability which threatened to push the global economy into the abyss of a new Great Depression in early 2009,” the report said.

In its twice-yearly outlook published last month, the Organization for Economic Cooperation and Development more than doubled its estimate for 2010 growth in its 30 member countries — which include the United States, Japan, Germany and Britain — to 1.9 percent, compared with a more gloomy 0.7 percent forecast back in June.

Still, the recovery is too timid to halt the continuing rise in unemployment. According to the OECD Economic Outlook, it may not be until 2011 that unemployment begins to fall in the euro zone from a projected 10.8 percent.

“Overall, unprecedented policy efforts appear to have succeeded in limiting the severity of the downturn and fostering a recovery to a degree that was largely unexpected even six months ago,” said Jorgen Elmeskov, OECD acting chief economist.

He cautioned, however, that government budgets had suffered badly from the crisis and the gross debt of most OECD countries could be larger than their GDP by 2011. Spending cuts or tax increases should not be carried out at a pace that would weaken the recovery, he stressed.

According to the IMF, much of global growth in 2010 will be dependent on Asia — not least China and India — which are projected to grow by 9 percent and 6.4 percent, respectively, boosted by large economic stimulus packages that are increasing demand from domestic sources.

In Japan, which faces intensifying deflation, economic activity is expected to contract by 5.4 percent in 2009, although a sizable fiscal stimulus and a modest increase in exports will lead to a recovery of 1.7 percent in 2010.

In the United States, the National Association for Business Economics, presenting the consensus of forecasts made by a panel of 48 economists, marked up its predictions for growth in 2010.

“While the recovery has been jobless so far, that should soon change. Within the next few months, companies should be adding instead of cutting jobs,” said Lynn Reaser, the association’s president.

In their annual outlook, the panelists predicted a relatively sluggish consumer upturn but looked for a sizable housing rebound, low inflation and a further rise in stock prices.

A surprising drop in the US unemployment rate in November raised hopes for a sustained economic recovery in 2010. The rate unexpectedly fell to 10 percent from a 26-year high of 10.2 percent in October, as employers cut the fewest number of jobs since what is dubbed the Great Recession began two years ago.

The better-than-expected figures provided a rare dose of good news for a labor market that has lost 7.3 million jobs since late 2007. Job creation, however, is expected to remain far too weak in coming months to absorb the 15.4 million unemployed Americans who are seeking work.

“Our biggest challenge now is growth and bringing down unemployment,” Treasury Secretary Timothy Geithner said. “That’s our overwhelming challenge. Nothing is possible without that.”

After four straight losing quarters, the US economy returned to growth in the July-September quarter, expanding at a modest 2.8 percent pace. The OECD predicted the US economy would expand at a rate of 2.5 percent in 2010, up from a June forecast of 0.9 percent. The economy has been boosted by stimulus measures, improving financial conditions, demand from the fast growing economies of Asia, especially China, and the stabilization of the housing market.

Once the economic recovery is firmly planted, the US administration can shift its strategy to bringing down the nation’s record-high budget deficit. Red ink hit a staggering $1.42 trillion in the 2009 budget year that ended Sept. 30.

Trimming the deficit “is not a 2010 story,” Geithner acknowledged, suggesting that it will take a longer effort. To stabilize the situation, the United States should get the deficit down to 3 percent of GDP in the medium term, he said. The 2009 deficit was 10 percent of GDP, the highest since World War II.

To nurture the recovery and with inflation under control, the Federal Reserve has kept rates at a record low near zero for a year and indicated they will stay there for an “extended period.”

By doing so, the Fed hopes to entice Americans and US businesses to boost spending, which would help the recovery.

In Europe, the 16-country euro zone emerged from its worst recession since World War II in the third quarter as exports from Germany and France helped compensate for households’ reluctance to increase spending.

“The region is at least out of recession and still on track to grow by a reasonably solid 1.5 percent next year, but there is scant evidence yet of the pickup in domestic demand needed to sustain a stronger recovery,” said Jonathan Loynes, chief European economist at Capital Economics.

Germany’s export-fueled economy, the largest in Europe, will grow by 1.6 percent in 2010, the country’s central bank predicted in early December, declaring that the outlook had “brightened perceptibly” over recent months.

The Bundesbank forecast the German economy would shrink by 4.9 percent this year before returning to growth in 2010.

Latin America, led by Brazil and Mexico, is poised to rebound in 2010 from recession thanks to improving export demand and higher prices for commodities such as oil and copper, according to regional economic officials.

Brazil is expecting a 5 percent expansion amid surging domestic consumer demand and signs of a pickup in exports. Mexico is eyeing 3 percent growth in 2010 after a 7.2 percent contraction this year. Chile expects a 5 percent expansion following a 1 percent drop in 2009. A growing consensus for sounder fiscal policies, more robust banking systems and bigger stockpiles of international reserves helped contain the damage from the global financial crisis, said Luis Alberto Moreno, president of the Inter-American Development Bank.

“Latin America felt the full force of the world market crash. But unlike in previous crises, now these downturns no longer need to translate into lost decades,” Moreno said

In the Middle East, the collapse of oil prices and a sharp contraction in foreign investment have weighed on the economies in the region. The recent improvement in global financial conditions and rise in commodity prices, however, are helping restore the pace of economic activity, the IMF reported. Real GDP growth for the region is projected at 2 percent in 2009 and 4.2 percent in 2010.

The Organization of Petroleum Exporting Countries, which supplies about 35 percent of the world’s oil, has cut crude production as the global recession curtailed demand. But signs of a global economic recovery are buoying oil prices. After zooming to $147.47 a barrel in July 2008 and crashing to $32 last December, oil prices have fluctuated around $70 recently after reaching their 2009 high of $82 a barrel in October.

Global oil demand is forecast to rise slightly faster in 2010, driven by increased economic activity in Asia and the Middle East, the International Energy Agency said.

The Paris-based IEA, an energy watchdog for some of the biggest crude consuming nations, said crude demand would reach 86.3 million barrels a day in 2010, up 1.7 percent from 2009.

In the United Arab Emirates, creditors fear Dubai’s debt problems could spread beyond Dubai World to the other state-linked companies known informally as “Dubai Inc.”

The conglomerate and the emirate had relied on cheap cash to build up Dubai — one of seven semi-autonomous city-states making up the UAE — over the past decade. But the bills are coming due and the money is not there. Allaying concerns of another wave of global credit problems, oil-rich Abu Dhabi has pumped $10 billion to its indebted neighbor to help it stay afloat.

Dubai World said it would seek a six-month “standstill,” effectively a delay, on repaying some of its $60 billion in debts.

Associated Press