Global economic growth will slow in 2011, with developing countries such as India and China providing the lion's share of the expansion. The World Bank estimates global GDP growth at 3.3 percent in 2011, against 3.9 percent in 2010, with emerging markets growing by 6 percent.
Economists believe the world is set for a triple-speed recovery this year; developing countries growing by more than 6 percent, the US by 3 percent, and the euro area by less than 2 percent. It appears most of the world, with a few exceptions, is suffering from the effects of high inflation. If international prices continue to rise, affordability issues and poverty could intensify.
The rising food prices in emerging nations are a worry, and economists are concerned that any further supply shocks could push prices even higher, triggering a food crisis like the one the world witnessed in 2008, when higher food costs led to violent unrest across the developing world. The price of Brent crude oil has hit $105 a barrel for the first time since October 2008 on concerns that the political unrest in the Middle East could result in disruption of oil supplies.
Here are additional analyses of major countries and regions:
The US budget deficit will hit $1.48 trillion this year. This almost equals the 10 percent of GDP overspend recorded by Washington in 2009 at the depth of the last recession. Growth is expected to be 3.1 percent in 2011 and 2.8 percent in 2012. These rates are slow compared with previous post-recession recoveries. The lack of stronger economic growth suggests the Federal Reserve Bank will complete its second $600 billion program of quantitative easing, which began in November and will finish in June. It has not been ruled out if more will follow.
Growth in household spending did pick up late in 2010 but has been constrained by high unemployment, which hovers around 10 percent and is not expected to return to a more normal 5.3 percent until 2016.
Inflation continues to be a concern within the euro zone, as rising fuel prices helped push annual inflation up to 2.2 percent in December, above the European Central Bank midterm target of just below 2 percent. Consumer prices in countries using the euro climbed 0.6 percent on a monthly basis. German inflation accelerated in January to its highest rate in over two years (a major contributory factor for euro zone inflation). Estonia has the highest inflation rate at 5.4 percent, followed by Greece at 5.2 percent, while Slovakia has the lowest rate at just 1.2 percent.
Euro zone unemployment remained at 10 percent in December, where it has been at or above for the past seven months. However, Irish unemployment fell last year, and German unemployment fell further than expected in January to 7.4 percent from 7.5 percent in December. Despite economic indicators pointing to a slowing in Germany’s economic recovery, that economy is set to expand by 2.3 percent this year, helped by strong manufacturing orders raising German business confidence. While falling unemployment should help boost German consumer spending, there are concerns that firms may face a shortage of skilled labor.
Japan's rising debt continues to be a problem: Its gross national state debt will soon rise above 200 percent of GDP. Some experts warn that Japan could end up like Greece unless it tackles this issue. In order to get the debt crisis under control Prime Minister Naoto Kan has drawn Kaoru Yosano, a veteran opposition politician, into the cabinet to help build cross-party agreement on fiscal reform. Yosano has said he aims to draw up a plan for funding rapidly rising social security costs, which could be the basis for cross-party discussion in June. Many politicians from both the ruling Democratic Party and opposition groups share Yosano’s conviction that a substantial increase in the consumption tax will be an essential part of returning to fiscal stability.
China’s GDP grew faster than expected in 2010, at a rate of 10.3 percent despite Beijing's repeated attempts to tap the brakes. The news fuels concerns that the authorities will resort to tougher methods in their struggle to contain inflation, and this could stall the world’s main engine of growth. Inflation eased to 4.6 percent in December from a 28-month high of 5.1 percent the month before, as food price pressures waned. Inflation for 2010, as a whole, was 3.3 percent. China’s leaders have made curbing inflation a high priority in light of the unrest experienced during past periods of high inflation. Following the release of this inflation data short-term market interest rates shot up almost 2 percent, while share prices on the Shanghai stock exchange fell 3 percent.
So far, despite rising inflation, the People’s Bank of China has shied away from raising interest rates because of the pain it would cause to lenders. Instead it's relied mainly on raising bank reserve requirements in order to curb the volume of lending. January saw the yuan strengthen against the dollar, although this may have been politically motivated to coincide with President Hu Jintao’s visit to the US.
Industrial output rose strongly in 2010, suggesting there is growing demand again for Chinese-made goods. Retail sales also rose by 14.8 percent during the year. In order for the economy to rebalance, economists say consumption will need to grow much more quickly than the overall growth level for many years.
Some of the best-performing Asian markets have started the New Year with a disconcerting, inflation-inspired selloff. Stocks in emerging markets from India and across Southeast Asia are now worried that interest rates will have to increase to fight inflation. Foreign investors have poured billions of dollars into these markets in recent months hoping to capitalize on the stronger economic growth there, compared to the US, Europe, and Japan.
There are now signs that foreign money is beginning to retreat. South Korea recently raised interest rates from 2.5 percent to 2.75 percent in an attempt to cool rising prices as the country’s economic recovery strengthens. A number of other Asian economies, including Thailand, have also raised interest rates in recent weeks to control rising inflation.
Following the floods in Australia, Brisbane faces a massive, costly rebuilding task after thousands of homes in the third largest city were swamped, adding to the mounting cost of the deluge across Queensland. Costs are estimated to be in the region of 15 billion Australian dollars.