Global economy watch - November 2012

 

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The gathering of Global Finance Ministers earlier in October revealed a souring mood among many policy makers. The IMF reflected this by revising down their forecast for global growth, bringing them into line with our own view that the recovery will be subdued and will take longer than initially thought. The IMF pointed to a disappointing economic performance in the US and the Euro zone in particular.

So what’s going on in these economies?

Take the US – after a promising start this year, the US economy appears to have stalled. Weak global conditions and uncertainty around the so-called fiscal cliff explains much of this decline. But at a time of deal averaging it was always going to be difficult to sustain strong growth.

Across the pond in the Euro zone businesses should brace themselves for a raft of negative data in the next few weeks and months. Our confirmation that the block is in recession looks likely when key 3 GDP data is released in mid-November.

Month in a glance

Key messages:

  1. IMF revised down its forecasts for global growth reflecting a souring mood among many policy makers
  2. The US economy has slowed and a recession in the Eurozone looks likely to be confirmed by Q3 data
  3. Businesses should recognise that the structure of the Eurozone economy is fundamentally changing and need to respond to thrive in the future
  • The gathering of global finance ministers earlier in October revealed a souring mood among many policy makers. The International Monetary Fund (IMF) reflected this by revising down its forecasts for global growth, bringing them into line with our own view that the recovery will be subdued and take longer than initially thought (see Figure 1). The IMF pointed, in particular, to a disappointing economic performance in the US and the Eurozone.
  • After a promising start to the year, US economic growth has slowed. Weaker global conditions and uncertainty around the ‘fiscal cliff’ explain much of this decline. But, at a time of deleveraging, it was always going to be difficult to sustain strong growth. The Fed has responded with another round of quantitative easing and has set out an accommodative monetary policy agenda until 2015.
  • Unemployment is on top of the presidential candidates’ economic agendas, but failure to deal with the approaching ‘fiscal cliff’ is probably the single greatest risk to the US economy. This could increase unemployment to 9.1% and push economic growth into negative territory in 2013, according to the Congressional Budget Office (CBO) estimates.
  • Businesses should brace themselves for a raft of negative Eurozone data over the next few weeks. A confirmation that the bloc is in recession looks likely when Q3 GDP data is released in mid-November.
  • We have refreshed our scenarios to help businesses plan through the uncertainty, but however the crisis actually plays out, businesses should recognise that the structure of the Eurozone economy is fundamentally changing and they need to respond to thrive in the future. This will involve reviewing whether their existing business model and supply chains can deliver in the ‘new normal’ environment.
  • Finally, in October, we launched our new monthly Global Consumer Index (see Figure 2) which tracks spending patterns of consumers across the world. The Index weakened substantially over the summer, but the latest data showed a pick-up in October. However, the Index signals that consumer spending growth is well below long-term trends.

Charts of the month

Figure 1 - Optimism for global economic growth in 2012 has gradually faded

#Source: IMF, PwC Analysis
Figure 2 - Our new Global Consumer Index shows that consumers appetite is below long-term trends with some recent improvement

Figure 2 - Our new Global Consumer Index shows that consumers appetite is below long-term trends with some recent improvement

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Note: Growth refers to the year-on-year change. Momentum is calculated as the 3 month annualised growth rate.

Source: PwC Analysis