Economists’ outlook turns sunny for world economy

Overall, economists gave better marks to the outlook for the current economic situation as well as for the coming six months, compared to their prognosis of a “soft landing” in the fourth quarter of last year. The Ifo World Economic Climate Index this quarter registered 106.5, a robust 1.8-point advance from the previous quarter. The report surveyed 1 030 experts in 90 countries.

“The survey indicates a continuation of the robust world economic upturn in the first half of 2007,” said Hans-Werner Sinn, President of the Ifo Institute for Economic Research.

In all three major economic regions – Asia, Western Europe, and North America – there was an uptick in the Ifo World Economic Climate Index. Assessments of the present economic situation remained highly favourable in North America, with economic stabilization expected in the first half of 2007. In Western Europe, the assessments of the present economic situation improved again in almost all countries of the euro area, except France, Italy, the Netherlands and Ireland. Expectations for the euro area, on average, point to an economic stabilization in the first half of the year. In Asia, the climate index rose. In India, the climate index increased again while in China it stayed constant.  Most economists expect India’s rapid growth, averaging about 7% annually over the last four years, to continue, with strong expansion in foreign trade. In China, the surveyed economists expect exports to decline in the first half of 2007.

Economists continue to predict a slowdown in price increases: in the US, they pegged average price increases at 2.5% versus 3.1% last year; in Europe, they see prices rising 2.1%, virtually on par with 2006, and in Asia they see price increases around 2.8%, the same as last year. With price increases seen as tempered, economists revised downwards their inflation expectations for 2007.

With a reduced risk of inflation, fewer economists surveyed than in the previous report expected interest rates to go up. Instead, they predicted an end to the cycle of interest rate rises in North America.

Currency evaluations stayed consistent with the last quarter. The US dollar continues to be viewed as fairly valued, while the euro and the British pound are considered overvalued and the Japanese yen as undervalued.

A special question in the current report asked experts to gauge whether public debate on the economic climate in their home country was founded on sound statistical data provided by official reports and websites. A total of 67% of respondents said debate was based on well-established data in North America, 62% agreed with this statement in Western Europe, while only 49% agreed this was the case in Asia.  In Latin America, CIS countries and Africa, 43% agreed with this statement, while 41% assented in the Middle East

The quarterly Ifo World Economic Survey is conducted in cooperation with the International Chamber of Commerce and receives financial support from the European Commission.