Posted on Tuesday 28 August 2012 by Ulster Business

 Angela McGowan  Chief Economist at Northern Bank

The outlook for the global economy has become more downbeat with global activity expected to be sluggish for some time, according to a new report published today by Northern Bank.

However in its latest ‘Global Scenarios’ report, Northern Bank also said it expects some stabilisation in the coming quarters before a slight recovery sets in towards the end of the year.

Overall, the report predicted growth will remain subdued across all regions as companies and consumers remain hesitant due to the euro crisis. The report forecasts global growth of only 3.5 per cent for 2012, a downgrade from the 3.9 per cent forecast earlier this year.

According to the report, three main risks to global growth are sitting on the horizon. The first and most significant is the euro crisis. The second relates to the ‘fiscal cliff’ which the United States faces at the end of this year – which could slow its otherwise decent recovery. Rising global food prices could also put downward pressure on growth, which is especially relevant in emerging markets where food is a high share of the consumer basket.

Northern Bank chief economist, Angela McGowan, said: “The latest downward revision to our global forecast is largely driven by the euro debt crisis, which still remains a significant risk. Although we believe EU leaders will do all they can to avoid a break-up of the euro, the risk still remains. However on the upside, things could improve significantly if the ECB delivers on Spanish and Italian bond purchases and the Troika strikes a deal with Greece to slow fiscal austerity. ”

The growth outlook for the euro area remains downbeat. Although PMI data improved moderately in August, demand has generally deteriorated across the euro area due to fiscal consolidation and low business and consumer confidence. The euro area continues to face strong headwinds and is expected to stay in recessionary territory in Quarter 3. Over the entire year GDP is forecast to shrink by 0.4 per cent. Positive growth is not expected to return to the euro zone until next year.

Economic growth in the United States has also slowed slightly in recent months but the good news has been the decent recovery in its housing market during the first half of 2012. A tug of war is currently playing out between improving fundamentals for the private sector (in terms of slowing deleveraging and reduced debt levels) and the need for fiscal consolidation in the government sector.

Ms McGowan added: “In the US, improved balance sheets for households, banks and exporting businesses are supporting growth but fiscal constraints and global uncertainty are going to keep a lid on economic activity in coming months.”

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