Global economy is on road to recovery

05 September 2013

The world’s eight leading economies are growing stronger and the rate of expansion is predicted to continue for the rest of 2013, according to the latest official data.

The eurozone is officially climbing out of recession, while the other major economies in North America, the UK and Japan are progressing at an ‘encouraging rate’, says the Organisation of Economic co-operation and Development (OECD).

But although the news is good for the G8, talk of the US Federal Reserve trimming financial easing has triggered falling currency rates – especially against the euro.

This has led to uncertainty in emerging economies like India and South Africa, where imports are becoming more expensive and exports cheaper for the more developed nations.

Stubborn growth

Overall, the OECD expects economic growth to remain stubborn, and the general view is that although the global economy is improving, many countries still have a long way to go to get to a sustainable recovery.

“Growth in the second quarter was better than predicted,” said the OECD study. “Business confidence and industrial production is improving. The US housing market is also stronger, but tapering economic stimulus will trigger higher bond yields that may hold back recovery.”

The report also found that slowing momentum in the BRICS economies of Brazil, Russia, India and China is a drag on the general global economy.

Looking at Europe, the survey shows the single currency area is could yet see more financial, banking and sovereign debt issues.

Trade obstacles

“Many European banks are carrying a large amount of bad loans and are undercapitalised,” said the report. “Governance reforms and requirements for increased capitalisation will help, but have to show they are able to withstand the severest of stress tests.”

In general, the OECD supports the US economic standpoint of reducing economic stimulus while maintaining low interest rates.

The OECD is also urging governments to drop protectionist trade barriers to encourage growth and job creation.

“Anything that removes these obstacles has got to be a step forward,” said the study. “Nations will need to sit down and thrash this out, but the world economy needs fewer restrictions.”

G8 GDP growth forecast

 

Q4 2012

Q12013

Q2 2013

Q3 2013

Q4 2013

USA

0.1

1.1

2.5

2.5

2.7

China

7.8

6.6

7.0

7.2

8.1

Japan

1.0

3.8

2.6

2.6

2.4

Germany

-1.8

0

2.9

2.3

2.4

France

-0.7

-0.6

1.9

1.4

1.6

Italy

-3.7

-2.2

-1.0

-0.4

-0.3

UK

-0.9

1.1

2.9

3.7

3.2

Canada

0.9

2.2

1.7

4.8

2.5

Source: iexpat

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