Canadian Manufacturing

World GDP will stumble as Europe’s struggles continue: report

Conference Board of Canada says developing countries will be saddled with supporting global economy



Ottawa—Europe’s woes will slow the world economy to tepid growth in real gross domestic product (GDP) of 2.6 per cent in 2012 and three per cent in 2013, according to The Conference Board of Canada’s World Outlook-Summer 2012.

With continued uncertainty in the Eurozone, developing countries will be saddled with supporting the global economy while Europe struggles to contain its debt crisis.

“The Eurozone’s financial crisis has spread beyond Greece to Spain as some major Spanish banks have had their credit downgraded, and European authorities are currently in damage-control mode,” Conference Board principal economist Kip Beckman said in a release. “The Eurozone will contract by 0.4 per cent this year and meager growth of 0.7 per cent is anticipated in 2013.”

The Conference Board report calls for the U.S. economy to expand by 2.3 per cent this year and 2.7 per cent in 2013—assuming the Eurozone doesn’t implode, the Chinese economy avoids a crash and the Obama administration and Congress relieve some of the uncertainty over the country’s fiscal health.

U.S. job creation, which was running at better than 200,000 a month in the winter, has weakened, with the April to June period seeing averages of only 75,000 jobs created per month.

Employers are undoubtedly exercising caution because of the crisis in Europe, according to the report.

“The situation in Japan and the United States is somewhat better, but their economies remain fragile and susceptible to additional turmoil in Europe,” Beckman said. “The good news for the global economy—and for Canada—is that we don’t expect the U.S. economy to slip back into recession this year.”

On the positive side, firms have not been increasing layoffs, with the global economic uncertainty simply causing reluctance to hire new employees.

The weak economic outlook in the developed world is beginning to strain growth in developing countries, according to the Conference Board.

Growth is also weakening in Latin America and the Asia-Pacific region, which rely on Europe to support demand for their exports.

China is the key trading partner for every country in the Asia-Pacific region, and its leaders are using interest rates and infrastructure spending to stimulate domestic demand in an effort to maintain growth above eight per cent over the next two years.

For the region as a whole (excluding Japan), real GDP is forecast to increase by 6.4 per cent this year, on the heels of 7.1 per cent growth in 2011.

Demand from Asia is also supporting growth in Latin America, but tumbling commodity prices—especially for oil—and political uncertainty are expected to slow real GDP growth to 3.7 per cent in 2012.

In particular, the interventionist policies of the Argentine government toward foreign investors and its appropriation of private pension funds could further drag down the region’s outlook, as could the polarized social and political climate in Venezuela.

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