WASHINGTON—The world suffered some setbacks in economic activity in recent months, impacting this year’s global growth, but the global economy is still expected to grow by 4.3 percent in 2011, according to an influential economist.
The economic fallout resulting from the earthquake, tsunami, and nuclear crisis in the world’s third largest economy, Japan, has not yet been quantified. Political convulsions in the Middle East and North Africa are disrupting economies in the Middle East and have contributed to an astounding increase in the price of crude oil. A severe earthquake in Australia and heavy flooding in New Zealand are hurting their economies.
Despite such catastrophes and turmoil that are certain to negatively impact regional economic growth, these disruptions will not derail the projected global GDP growth rate of 4.3 percent for 2011, and 4.5 percent for 2012, according to Dr. Michael Mussa, senior fellow at the Peterson Institute for International Economics (PIIE). He recently spoke at PIIE, which hosted its 19th semiannual Global Economic Prospects program last week in Washington, D.C.
Mussa found that “the great global recovery has featured much stronger performance by the emerging market and developing economies than by the advanced economies.”
Mussa has been forecasting national and global economic trends for several decades, serving as chief economist at the International Monetary Fund from 1991 to 2001 before joining PIIE, and was previously a member of President Ronald Reagan’s Council of Economic Advisers.
“The key feature of the global recovery is that we can see a sharp division between the powerful recoveries of developing and emerging economies and an anemic recovery in the advanced economies,” said Mussa.
The “advanced” economies are the United States, Japan, Canada, and nations in Western Europe. These countries will average 2.7 percent growth in real GDP. He projected 3.3 percent growth for the United States in 2011. In most of the advanced economies, particularly in Europe, economic output has not recovered to pre-recession levels.
“Canada is the major industrial country where its real GDP at the end of 2010 was measurably above its pre-recession level,” writes Mussa. The U.S. economy in the last quarter of 2010 finally attained it, while Germany and other G-7 countries “are well below their pre-recession levels of real GDP,” says Mussa.
By contrast, Mussa anticipates 6.1 percent GDP growth for emerging market and developing economies, such as China, India, Brazil, Mexico, and Russia. He sees the emerging market countries on average growing to their fullest potential this year and next, while the advanced economies are making “modest progress,” but not performing to their full potential.
GDP Growth Survey
A brief survey around the world can give some idea of how the leading economies performed in 2010.
Japan was 3.9, which was still 4 percent below its pre-recession level. Because of the calamities this year, Mussa is projecting only 1.0 percent growth for 2011.
Germany in 2010 reached 3.6 percent, and Mussa forecasts 2.9 percent growth this year.
Mussa expects that the Middle East and North Africa region will suffer a sharp slowdown in growth this year, but he is hopeful for a recovery in 2012.
Marcus Nolan, deputy director of PIIE, noted that the Middle East region has the lowest employment rate in the world and is in need of economic reform. Youth unemployment is twice the world average, and it is correlated with educational attainment—the reverse of Western democracies. In Egypt, the ratio of a college grad to elementary school grad unemployment rate is tenfold.
India and China reached 9 and 10 percent growth, respectively, in 2010. However, neither country is expected to sustain the same high growth rates in the next year or the following year.
Dr. Nicholas Lardy, senior fellow at PIIE, who has written extensively on the Chinese economy, says that China can no longer count on exports as an engine of growth. He said at the PIIE program that “what worries him the most” is that China won’t be able to get its domestic “consumption growth going rapidly enough to be a significant driver of GDP and that the economy slows down substantially.”
Brazil, with the largest economy in Latin America, attained 7.5 percent growth in 2010. Mexico, the second largest economy in Latin America, attained 5.5 percent increase in GDP.
Russia suffered a nearly 8 percent decline on 2009, but with the recent increases in petroleum prices, its GDP growth was 4 percent in 2010 and this trend should continue this year and next at 4.5 percent.
Read More…Japan Recovery