- Turn in housing and lower uncertainty to drive strong US growth.
- China recovering - but to lower potential growth rate.
- Euro area set for weak export-driven recovery.
- Monetary policy to stay very accommodative for long period.
- Main risk continues to be the euro crisis.
Global economy has been on a slowdown track for two and a half years now, but there are finally signs that a path towards a sustainable recovery has started.
The very slow global growth in recent years can be attributed mainly to three factors:
1. A severe hangover following the Great Housing Bubble;
2. Periods of intense financial stress due to the euro crisis; and
3. Chinese policy tightening to stem a housing bubble and fight inflation. The recipe for a sustainable global recovery is to be found in improvement on these three fronts – and we are indeed seeing this now.
First, we see many signs that the world’s largest economy has progressed significantly from the hangover following the Great Housing Bubble. We believe this will be an important driver of a global recovery in the years ahead.
Secondly, there are clear indications that the periods of intense financial stress due to the euro crisis could be behind us. The stress has given significant uncertainty for consumers and companies globally as well as restrained private spending. This has added to the significant drag coming from a decline in public spending in many countries. The back-stop from the ECB has so far worked to significantly improve sentiment in financial markets, and to avoid the euro crisis from flaring up again. The fairly calm effect - to date - following the Italian election is an indicatior.
To Read the Entire Report Please Click on the pdf File Below.