Global recovery challenged by the confidence crisis
Recession expected to be avoided by resilient Asia and a rebound in the US
US growth to improve as headwinds from high oil prices vanish
Debt crisis and fiscal consolidation will weigh on economic growth in the euro area
Asia to accelerate in H2, on strong Chinese demand and reconstruction in Japan
The main risk is that the euro area debt crisis leads to a global credit crunch
Global overview
Long period of slow growth ahead
Global growth will take an extra hit from the recent financial shock. The previously expected rebound in growth in Q3 is unlikely to materialise, but we do not expect a new recession. Following a soft quarter in Q3, we expect a slight improvement in Q4 to around trend growth globally.
Low inventory levels, lower oil and food prices, a sharp decline in bond yields and recovery in China will underpin growth in the developed economies and avoid recession.
There will be long-term damage from the shocks to the global economy this year, though. The job engine has not yet started and we are now faced with significant fiscal policy tightening in the advanced economies in the coming years.
The West is trapped with low growth rates in the coming years and will struggle with elevated unemployment rates for a long time.
As a consequence, central bank rates in the US, Europe and Japan will be kept low for the foreseeable future and this will keep bond yields low as well.
Despite low growth in the West, the world economy is expected to grow more than 4% per year as Emerging Markets deliver slightly more than 6% growth.
