Global GDP set to recover

The outlook for the Global Economy

World GDP will continue to recover. 

• In 2013, world GDP in real terms is projected to be around 10% above its pre-recession peak in 2008 and around 40% above 2000 levels. We expect the world economy to expand by 3% in PPP terms - close to its long-term trend rate. We also think, however, that 2013 could be a year when the US will return to near trend levels of growth, after narrowly avoiding falling off the fiscal cliff. Despite only a modest recovery by historic standards, the UK could still be the best performing developed European economy in 2013 given the slow or negative growth expected across other major EU economies.

Emerging and developing economies will outgrow advanced economies. 

• 2013 will be the first time since reliable records began when emerging and developing economies will be bigger than the advanced economies. China, India and Brazil will account for nearly half of world GDP growth in 2013. Although this is only true for GDP measured in purchasing power parity (PPP) terms, which takes into account price differentials across the economies and overstates the size of less developed economies at current market exchange rates, this will be a symbolic event that is expected to set the trend for decades to come. Watch out for frontier markets such as Vietnam, UAE, Botswana, Kazakhstan, Kenya and Kuwait. According to the IMF, 10 of the 20 fastest-growing economies during the next five years will be in Sub-Saharan Africa and 2 in North Africa. Many frontier countries are leading producers of important commodities such as oil, gas and precious metals, making them well positioned to potentially benefit from growing global demand for these resources.

Volatile but relative high commodity prices are set to continue through 2013 and beyond. 

• Large, fast-growing and resource-hungry economies like China and India will continue to increase their greater buying power in global markets. But, because of their less developed regulatory institutions and lack of significant automatic stabilisers - e.g. income taxes, pensions and welfare payments - their economic growth rates will tend to be more volatile. This means that unstable and erratic commodity prices (which are closely linked to their growth rates) are set to continue for 2013 and indeed beyond. However, it is the citizens of emerging economies that will remain most vulnerable to commodity price swings. Keeping inflation within pre-set thresholds could prove difficult for policymakers worried about hurting those with lower incomes in the absence of a proper social safety net in many emerging economies. Businesses in these countries – and those reliant on commodity inputs - should look to mitigate this risk by incorporating different scenarios in their business plans.