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Next year augurs better for world economy, survey shows

US House Speaker John Boehner speaks to the media on the “fiscal cliff” on Capitol Hill in Washington, December 20, 2012. — Reuters picUS House Speaker John Boehner speaks to the media on the “fiscal cliff” on Capitol Hill in Washington, December 20, 2012. — Reuters picLONDON, Dec 21 — Next year promises only a slight pick-up in the world economy and even that will again depend heavily on the United States and emerging markets as Europe stalls, according to the latest Reuters Polls.

In many ways, the outlook for 2013 hinges on whether emerging economies like China and Brazil finally deliver the upturn that many economists had expected this year.

There again seems little hope that growth in the biggest developed economies, many of them burdened with major financial problems, will accelerate much next year.

Threats to the stability of the world economy have a now-familiar ring to them, whether in the form of the smouldering sovereign debt crisis in the recession-hit euro zone, or geopolitical convulsions in the Middle East.

While more swathes of central bank cash have largely placated volatile financial markets over the last year, many of the big economic questions remain unanswered.

The threat that the United States will start the new year by plunging into a round of severe and automatic budget cuts remains real. Stalled talks on the US "fiscal cliff" grew more heated on Wednesday.

Still, there are reasons why most economists polled by Reuters think next year will better the mediocre growth of 2012, if only by a little.

And business surveys in China suggest the slowdown there, more protracted than most economists had expected, has ended.

"With the exception of the fiscal cliff, the major risks are broadly the same as 12 months ago. However, they do attract slightly different nuances," said Philip Shaw, chief economist at Investec in London.

"Quite clearly, the lagging economy is likely to be the euro zone. While financial confidence has improved markedly over the last few months, that hasn't extended to economic confidence."

He said it was unlikely the region will see anything resembling an upturn until the second half of 2013. That weak euro zone outlook will pressure the euro next year, although forecasts for most major currencies are steady.

Overall, global forecasts collated from 22 economists suggested the world economy will grow around 3.2 per cent in 2013, compared with around 3.1 per cent forecast for 2012 in the last Reuters quarterly global economy poll.

That outlook is slightly more pessimistic than those from either the International Monetary Fund or the Organization for Economic Co-operation and Development.

Reuters polls of professional forecasters suggest next year will be a slightly calmer one for the world economy.

"It has been a fatiguing year for market participants and observers," said Huw McKay, senior international economist at Westpac, pointing out the many uncertainties of 2012.

"Euro zone survival, political leadership in the US and China, recession risks, commodity price volatility and activist monetary policy in many guises. Individually such things fray the nerves. Collectively they apply a blow-torch to them."

At least some of those risks have receded.

Last week's global poll of equity market strategists suggested world stocks should gain firmly next year, helped by a surfeit of central bank cash and led by Asian shares in particular.

Yields on major government bonds are also expected to climb modestly through 2013, a Reuters poll showed yesterday, but this is contingent upon real economic recovery.

Global asset managers are ending 2012 with lower stock holdings and more bonds than 12 months ago, staying wary about the US "fiscal cliff" despite a rally in most markets this year, a Reuters poll showed yesterday.

However, looking forward to 2013, fund managers said, a deal on the fiscal cliff — still the baseline scenario for most — is likely to push investors back towards stocks.

Still, oil analysts polled yesterday were more cautious about prospects for the world economy.

They suggested North Sea Brent crude oil will average US$108 per barrel in 2013, down from Wednesday's US$110.04, weighed down by oversupply.

"The weakness of the global economy and an erosion of the premium that has resulted from increased political tension in the Middle East should weigh on the price of oil," said economists John Higgins and Andrew Kenningham from Capital Economics.

Investec's Shaw forecast better days for China and the United States.

China's vast manufacturing sector grew in early December and US factories were having their best month since April, according to business surveys last Friday, adding to hopes the world's two biggest economies were on the mend.

"With the United States, our central view is that activity should maintain its momentum at the very least through 2013, providing of course that the issue surrounding the ‘fiscal cliff' is sorted out in time."

While there is still a risk negotiations between President Barack Obama and opposing Republicans who control the House of Representatives could fall apart, both sides have made concessions towards striking a deal in recent days. — Reuters

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