Banc of America Securities -Merrill Lynch has hiked up its global economic growth forecasts for 2010 on the back of signs of recovery in the United States and China.
At the Global Economics Mid-Year Update, held in London this morning, head of international economics, global currencies and rates research Riccardo Barbieri revealed the bank now expects global GDP growth of 3.7% next year, up from the former forecast of 3.2%, with emerging markets such as China and India likely to show the most pronounced signs of recovery. Adjusting for price changes and inflation (real GDP), however, amounts to a forecast 0.1% contraction in the global economy in 2010.
“Concerted government and central bank actions to pump money into key economies like the US and China are starting to show signs of bearing fruit,” Barbieri said. “The US and China are expected to be the main forces behind a global recovery in 2010.”
The bank’s US economists now expect the world’s largest economy to grow by 2.6% in 2010 against their previous 1.8% forecast, supported by fiscal spending projects, modest consumer spending growth, and a rebound in inventory investment, as well as a slight pick-up in the American housing market and an improvement in exports.
China’s economy is now forecast to expand by 9.6% next year following 8% growth this year. But China is not the only source of robust growth: Banc of America Securities-Merrill Lynch forecasts show that prospects for other emerging economies, especially within Asia, have also improved significantly.
The outlook isn’t quite so sunny in Europe, however. “Advanced economies are set to recover more slowly than emerging nations with Europe, in particular, expected to be a laggard,” the analysts wrote in a research note that accompanied Wednesday’s mid-year update.
Forecasts for the eurozone remain unchanged with a growth forecast of 1.2% for 2010 after a 4.4% contraction in 2009. Note, however, that these projections are still far more optimistic than forecasts from the European Central Bank, which currently expects the 16-nation eurozone to show zero growth next year.
Eurostat this morning confirmed that gross domestic product declined by 2.5% in the eurozone in the first three months of the year following a 1.6% contraction in the final quarter of 2008. But the pace of contraction is expected to ease going forward: “There are signs that some of the main drags on economic growth will stabilise or even return to growth,” Jörg Radeke, economist at the Centre for Economics and Business Research said earlier today. “This means that the contraction in the second quarter should be far less severe than the 2.5% contraction seen in the first quarter.”
Returning the Banc of America Securities-Merrill Lynch’s latest research, their more optimistic forecasts for global economic growth in 2010 are underpinned by the expectation that governments will continue to inject money into their economies in the form of fiscal stimulus packages going into next year.
“We see risks to our new global forecast as being tilted on the downside,” analysts wrote in the accompanying research note. “The depth and duration of the recession could cause an aggravation in personal and corporate defaults that would negatively feed back into the banking system.”
On the upside, however, the broker said it believes governments are aware of the risks entailed by a continuation of the recession and, as a result, will inject an additional dose of fiscal stimulus into their respective economies well into 2010.
“Monetary policy will need to walk the thin line of remaining stimulant to avoid double-dip scenarios while avoiding signalling complacency, especially as the predicted recovery at the end of the year becomes more certain,” the analysts warned.
