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Global economy to grow at below-trend rate in 2013, more tailwinds in U.S.

English.news.cn   2013-07-11 12:38:43            

by Jiang Hanlu, Liu Fan

NEW YORK, July 10 (Xinhua) -- The global economy will continue to grow at below-trend rate this year, weighed by modest recovery in mature markets and gradual slowdown in major emerging markets, said an economist Wednesday.

At a briefing of its Mid-Year Global Economic Outlook 2013, The Conference Board slightly lowered its forecast for global growth rate to 3 percent from 3.2 percent for 2013.

"The global economy could grow at about 4 percent, even a little bit more, maybe 4.5 percent. So we are 1 to 1.5 percent below the global trend growth rate," said Bart van Ark, chief economist of The Conference Board.

Van Ark said the real major reason for below-trend global growth was global integration of the economy as trade, foreign direct investment and global financial flows have all been slowing down.

Van Ark also outlined potential headwinds and tailwinds in the global economy. Fiscal imbalances, slowing political and economic reforms, changing global supply chains and changing demographics of labor markets will act as risks to the global economy, while technology and innovation will provide opportunities.


"The tailwinds are stronger at the moment in the case of the United States," van Ark said.

According to a report released by The Conference Board on Wednesday, the U.S. economy looks poised to strengthen as private sector strength more clearly offsets fiscal drag.

A robust rebound in housing prices and ongoing rise in equity prices is lifting consumers' net wealth and consumer confidence levels, the report said. U.S. job creation provides support for continued strength, although no acceleration in employment growth is anticipated, it said.

Van Ark said that a solidly recovering U.S. housing market and the energy boom that gives U.S. companies a competitive advantage are also helping the world's largest economy.

However, headwinds remain for the United States such as the federal government's sequester cuts. "Quite a bit of that has already been realized in the past couple of months... While we cannot be sure that the sequester will be gone for the rest of the year, we think it is still a little bit of headwind," van Ark said.

The board forecast the U.S economy will grow 1.6 percent this year, lower than its 2.2 percent pace in 2012.

The report suggested that a stronger second half of 2013 depends on higher incomes, better business investment and productivity gains.


"Headwinds in the case of Europe really tend to dominate tailwinds," van Ark said, adding that "we don't really think that in the second half of 2013 we'll see much of a recovery in the euro area as a whole."

According to van Ark, the main headwind in Europe to a large extent is still domestic or intra-European.

"There is a lot of homework to be done within the European Union when it comes to a more solid footing of the banking system, disagreement between the European Commission and European governments, and among European governments. All of these are sort of holding back confidence," he stressed.

Another major headwind in Europe is the increase in unemployment rate over the past couple of months. Unemployment was already very high in countries like Spain, Greece, Portugal and even Italy, but the northern economies are beginning to see gradual increases in employment. "So there is a huge diversity in the European Union," van Ark noted.

What makes Europe more vulnerable to headwinds is that European economies are much more open to the rest of the world than that of the United States.

"So the slowing down in emerging markets, notably in China, is very much working against Europe and particularly working against Germany, for which China is a particularly important export market," he said.

According to the board's report, the European economy remains in recession even as financial markets remain fairly stable. And despite some improvements in business and consumer confidence, hard data for most European economies continue to weaken.

Editor: Yang Lina
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