The world's richest countries will all have quit recession by the third quarter, but growth will struggle to keep pace with Asian economies heading into 2010, Reuters polls showed. The polls confirmed leading economists do not expect the Group of Seven economies to slide back into recession, but hearty growth does not look likely as unemployment creeps up to new highs.
The United States, eurozone and UK were thought to have emerged from the steepest recession in decades in the third quarter this year, following Japan which edged out in the second quarter and after huge economic stimulus measures by governments and central banks. The G7 also includes Canada and its euro zone members are Germany, France and Italy.
A quarterly survey of over 200 economists showed the United States was expected to lead the G7 pack in 2010, partly as it entered and so will likely emerge sooner from a global recession than others. Yet separate Reuters polls this week clearly show how far the G7 will lag Asian economies, where forecast growth of around 7.5 percent in India and 9.0 percent in China next year contrasted with comparable forecasts of 2.4 percent in the US and 1.0 percent in the euro zone.
"This upturn is coming through a bit more quickly than in past crises because of the incredible stimulus we have seen but sustaining that growth will be quite difficult," said Ken Wattret, chief euro zone economist at BNP Paribas. A slow US march towards more robust growth may take until 2011, while euro zone growth could be held back by a strong euro, which many see breaking the $1.50 level before long. See.
Weak growth prospects across the G7 will help convince its major central banks to leave in place the vast stimulus measures and record low interest rates until recovery proves sustained and consumers begin to spend again. "The recovery is gathering momentum, but it remains to be seen if the consumer can spend enough to keep growth positive when stimulus ends," said Chris Low at FTN Financial.
The polls showed it would take a long time for another major central bank to follow the lead of the Reserve Bank of Australia, which became the first in the larger Group of 20 nations to raise rates this month as the financial crisis eases. The US Federal Reserve, European Central Bank and Bank of England were predicted to start raising rates again in the second half of next year, while a deflationary environment in Japan would keep its central bank on hold for even longer.
Unemployment will likely prove a key hindrance in the recovery among G7 nations. With growth expected to be weak for some time jobs will continue to be cut, sending unemployment above 10 percent in the United States and euro zone, and just shy of that level in Britain. "There is general caution in the business community about recruiting new staff. So in the early stages of recovery you probably won't get the pass-through into employment that you normally see, and that will stop the recovery from gaining momentum," said Wattret.
Consumers and central banks will at least not have to fear surging prices in a such a weak economic environment. Across the G7 inflation was forecast to average below 2.0 percent next year, and hold in deflationary territory in Japan. That level will help central banks keep interest rates on hold. Many central bankers, including ECB President Jean-Claude Trichet, have said they will remove extraordinary stimulus measures when these begin to pose an inflationary threat.
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