Economists see upturn in global economy
The global economy is set to expand in the second half of the year in all major regions, as expectations for the current quarter and the next six months are revised upwards, according to the latest ICC and Ifo World Economic Survey released today.
The report surveyed 1 003 economic experts in 91 countries in July, during a time when worries started to mount over a credit crisis touched off by a wave of defaults in US sub-prime mortgages, and concerns over securities linked to them.
The Ifo World Climate Index rose to 113.6 this quarter, up a sharp 6.9 points from 106.5 in the previous quarter.
“These results point to a robust world economy in the second half of 2007,” said Hans-Werner Sinn, President of the Ifo Institute for Economic Research at the University of Munich.
Economists polled upgraded their expectations for the US economy. US consumer spending is seen stablizing due to wage growth, and US exports rising due to a strong global economy, keeping in check the fallout from a slowdown in the housing market.
The overall economic climate in Western Europe improved markedly in the recent survey, although growth is seen tempered over the next six months in Spain, the UK, Ireland Norway and Denmark. In Asia, economists raised their outlook slightly for the region, with Hong Kong showing the strongest improvement over previsions the previous quarter. The outlook for Japan has also brightened as exports are expected to accelerate due to a weaker yen versus the US dollar, and the outlook for China continues to be favourable.
In Latin America, economists see economic stabilization in the next six months but with large country-by-country variations, with positive growth in the second half seen in Chile and Brazil, while a slowdown is predicted for Argentina and Venezuela. In the Middle East, economists raised their six-month forecast for Turkey but noted the economy in Iran continues to worsen. In South Africa, economists downgraded their six-month outlook due to inflationary pressures and flagging consumer spending.
Except for North America, where inflation is seen remaining at 2.7% experts predict inflation will accelerate to 3.1% across all regions of the world save in Australia and New Zealand. In the euro zone, the outlook for inflation increased slightly to 2.1% from 2.0%. However, inflation in China is expected to rise a full percentage point above the rate in the last survey to 3.7%.
A larger number of experts in the current survey said the US dollar is undervalued, although a further weakening of the dollar versus other currencies is expected in the next six months. A majority of economists continue to view the Japanese yen as undervalued. More economists than in the previous survey said the British pound and the euro are overvalued.
Economists hailing from all major regions broadly expect interest rates to rise in the coming six months.
Better data on counterfeiting and piracy needed
Most economists surveyed agreed that a comprehensive analysis of the full financial and social impact from counterfeiting and piracy is needed. They also said the problem of counterfeiting and piracy will only be solved when national governments commit adequate resources to strengthen law enforcement and establish effective penalties that deter this criminal activity.
The quarterly Ifo World Economic Survey is conducted in cooperation with ICC and receives financial support from the European Commission.