World economy to slow, rely on emerging Asia: Reuters poll

By Ross Finley

LONDON (BestGrowthStock) – The world economy is set to rely even more heavily on booming emerging markets next year as recovery in rich nations from the worst financial crisis in generations plods on, Reuters polls showed.

The consensus from more than 500 economists polled across the Group of Seven industrialized nations and Asia found them less optimistic about recovery in the U.S., but forecasting robust growth in China and India next year.

Global GDP is expected to grow by a robust 4.6 percent this year from a consensus of 4.2 percent just three months ago, driven by emerging markets, but will then slow to 4.0 percent in 2011, according to the poll.

A series of policy tightening moves and interest rate hikes in those fast-growing economies stands in stark contrast to unanimous expectations that the Federal Reserve is about to embark on a new round of asset purchases.

The Reuters consensus is now for a new round of quantitative easing (QE) starting in November and worth $500 billion, an attempt to reinvigorate a recovery that has quickly wilted, leaving U.S. unemployment close to 10 percent.

Expectations have also risen that the Bank of England will start a new round of asset purchases very soon, with analysts polled now split evenly over whether it will vastly expand its balance sheet.

“Central banks are responding to a disappointing economic recovery, the rising risk of economic relapse,” said RBS economist Jacques Cailloux in a research note. “Deflation risks (are) judged to be the greatest at this stage.”

Economists expect a languid rate of expansion in the biggest developed economies through to the middle of 2012, with annual growth in many cases struggling to top 2 percent either this year or next.

While growth in each quarter is expected to quicken very modestly in the case of the United States, vast budget austerity measures in the euro zone and Britain are expected to sap the momentum from economic recoveries taking place there.

Japan, struggling to break the stranglehold of a strong currency, will likely see its economic recovery stagnate completely in the fourth quarter of this year before recovering slowly in 2011. It is already mired in deflation.

Forecasts for the rest of the rich world show less of a worry about broadly falling prices, although inflation is expected to remain low enough to keep Fed and ECB policy rates on hold until late next year.

BOOMING ASIA

Asia’s powerhouses are faring far better. In the latest poll, economists revised up forecasts for 2010 growth for most economies in a survey of 13 countries, excluding Japan.

China is expected to lead the way, with 10 percent growth this year and 8.9 percent in 2011. India will be not far behind, with 8.4 percent growth expected in the current fiscal year and virtually no slowdown in the following one.

Economists revised down their 2011 forecasts compared with the last quarterly poll in July, citing reduced government stimulus and a slow recovery in the United States and Europe.

Some economists warn that the Asian economies’ reliance on demand from the rest of the world puts them at risk.

“The slowdown has clearly begun in terms of the industrial cycle and that will continue,” said economist Robert Prior-Wandesforde of Credit Suisse, pointing to leading indicators that suggest non-Japan Asia’s industrial growth will ease over the next six months.

“The slowdown could be abrupt and surprise many by the extent of the weakness,” he said.

(Polling by Bangalore Polling Unit, Reporters in Asia and G7 bureaux, Additional reporting by Nopporn Wong-Anan in Singapore and Andy Bruce in London, Editing by Catherine Evans)

World economy to slow, rely on emerging Asia: Reuters poll