Global Economy: Normality Has Yet to Return

Ongoing uncertainty about the global economic recovery is reflected in the choppy pattern of changed forecasts in recent months. The slide in expectations for China hit a trough toward the end of 2012 and started to improve in early 2013. However, that upturn tapered off in March and April, partly due to instability in the euro zone and signs of weakness in domestic demand. A steep slowdown in the Chinese economy may have become improbable, after it rebounded in Q4 2012 and Beijing committed itself to more public spending. However, the breakneck pace of expansion it achieved in prior years is no longer likely. Growth slowed in Q1 and the government has highlighted the need for tighter bank lending to mitigate financial risks, while fiscal consolidation in the US and Europe has curbed demand for Chinese exports. Immediate prospects for Japan have similarly brightened after the new Prime Minister, Mr Shinzo Abe, pledged to end the cycle of deflation and recession. Real GDP growth forecasts have doubled for 2013, from the low readings in December 2012, while industrial production has improved alongside a slump in the yen. The failed monetary and fiscal initiatives of the 1990s nonetheless cast a shadow over the ability of the government to pursue difficult reforms and deregulation. Forecasts for the US have, meanwhile, inched higher in our latest poll, despite sequestered cuts in spending and a weak payroll figure for March, which pared back some of the earlier improvement in sentiment.

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