Global economy watch - September 2012

The economy in 90 seconds
In this short video, Richard Boxshall outlines the latest scenario for the global economy and closer to home looks at the UK Government's "Funding for Lending Scheme"

View transcript

It is easy to forget, amid the doom and gloom here in Europe, that the global economy continues to grow at a reasonable rate. In fact, our main scenario is for global growth of 3.1% this year – just below its trend over the last decade.

So in this month’s edition we’ve looked for pockets of opportunities that exist in the global economy.
We’ve focused on four countries – Mexico, Indonesia, Australia and Poland – which have all demonstrated economic resilience and are well placed to prosper in the coming years. 

These economies have benefited from:

  • a swift recovery from the 2008 crisis; 
  • fiscal and financial stability which has helped promote credit growth and support demand; and
  • (with the exception of Australia) they are going though rapid structural change.

Nevertheless, we cannot ignore events in Europe. The latest data release confirms a Eurozone contraction in Q2, and uncertainty over the euro is weighing down on confidence suggesting further contraction ahead – our main scenario is for the Eurozone to shrink by 0.7% in 2012.

Closer to home, our special focus is on the UK Governement's "Funding for Lending Scheme." Our analysis shows that small businesses will have to worry less about finance costs and be able to spend more time on revenue generation.

To find out more on the economies discussed here, take a look at our website.

Month in a glance

Despite the gloom in Europe, the world economy continues to grow close to trend as there are pockets of opportunity in faster growing economies
  • Amid the doom and gloom here in Europe, it is easy to overlook the fact that the global economy continues to grow at a reasonable rate. In fact, our main scenario is for global growth of 3.1% for this year and close to its trend over the last decade. In our September issue of the Global Economy Watch we focus on the positive stories in the global economy by identifying pockets of opportunity that exist across different regions and countries which businesses could seek to exploit.
  • The countries we focus on in this edition are Mexico, Indonesia, Australia and Poland.  These countries have a number of common features that make them stand out from the crowd.
  • First, they have all had a swift recovery from the 2008 crisis and have returned to sustainable growth levels. Poland, for example, achieved this by showcasing the size and potential of its internal market to its richer neighbours.
  • Secondly, these countries continue to exhibit fiscal and financial stability. Unsurprisingly, areas that have had limited exposure to the Eurozone, such as Australia, or where financial supervision was more risk-averse, such as Mexico, have managed to rebound faster and with more confidence.
  • At the same time in these economies, financial stability has helped promote credit growth, having a positive impact on output and public debt levels. In Poland, where no banks have been bailed out with public money, credit continues to grow at an impressive 21% a year compared to 4% for the Eurozone. Also, Polish public debt levels continue to be around a third lower than its European peers.
  • And third, opportunities continue to appear in countries which are undergoing rapid structural change in their economies. Indonesia is attempting to emulate China by investing heavily  in infrastructure in a bid to build a manufacturing base. Meanwhile, Mexico’s planned opening of key markets such as media, telecoms and energy is anticipated to accelerate its transformation from a manufacturing base to a more service oriented one.
  • While there are good news stories in the global economy, we cannot ignore events in Europe. Business prospects in the region continue to be overshadowed by uncertainty, and the latest data release confirms a Eurozone contraction in Q2.  Our Eurozone projection remains broadly unchanged at -0.7% for 2012. Our special focus looks at the UK government’s ‘Funding for Lending Scheme’. This scheme should help small businesses, in particular, by lowering the cost of funding, but confidence will need to return before it has a major impact on economic growth.

Charts of the month

Figure 1 - The global economy continues to grow and we have identified pockets of opportunity across different countries...
Image in a modalSource: PwC analysis
Figure 2 - the same time, the uncertainty in the Eurozone continues to delay a full-scale global rebound
Image in a modalSource: IMP, PwC analysis