Last week the IMF released its World Economic Outlook Update for the October 2009 forecast. The global economy is expected to grow 3.9% in 2010, an 0.8% upward revision. In fact, the 2010 growth projections were generally upward with little offset in 2011 (often when you get a surprise and positive economic release, the current period forecast improves at the cost of growth later in the forecast):
- The 2010 U.S. growth Update is 1.2%-points above the October level, now 2.7%.
- The Eurozone GDP growth Updated to 1% pace in 2010, up 233% from October’s forecast (driven by the 400% surge of Germany’s GDP growth outlook, now 1.5% in 2010).
- Canada’s GDP growth forecast got a slight bump, up 0.5%-points to 2.6%.
- The UK is now expected to grow at a 1.3% annual pace in 2010.
- Russia’s Update to GDP growth is 3.6% in 2010 (that’s off of a sharp 9% drop in 2009).
- And the IMF envisages that China maintain 10% growth in 2010, up 1%-point from its forecast just 3 months ago.
The IMF has no crystal ball, but the story is compelling: banking crisis + global recession = weak recovery. However, it is improbable that the IMF is spot on. The short IMF press release stresses the divergent path of economic recovery across the advanced and developing world. In short, much of the emerging and developing world should recover smartly, while key advanced economies, burdened by debt and financial stress, are to see a more muted recovery.
Of note is the IMF’s listed upside risk to the growth forecast (thus inflation, trade, and other related variables):
On the upside, the reversal of the confidence crisis and the reduction in uncertainty may continue to foster a stronger-than-expected improvement in financial market sentiment and prompt a larger-than-expected rebound in capital flows, trade, and private demand.
Confidence, consumer, investor, and business, is key – let’s focus on the consumer. The one that accounts for roughly 17% of global GDP – i.e., the U.S. consumer – remains afflicted by excessive debt burden and record unemployment. In contrast, consumer confidence is rebounding smartly in other parts of the world, developed and developing.
Advanced consumers showing some confidence, but the U.S. consumer confidence index remains 39% below that during the onset of the recession.
The chart illustrates various measures of consumer confidence across a selection of advanced economies (you can see the exact sources here). Consumer confidence in the U.S., U.K., Germany, and Ireland remain well short of their Jan. 2008 levels. Notably, confidence in the U.S. has moved laterally since May 2009 despite recent gains in the fourth quarter of 2009.
Confidence in some emerging economies remains muted as well.
I chose a selection of monthly confidence indicators for select emerging markets. Clearly, some biggies are missing – India and South Korea being the first on the list – but data availability and/or frequency precludes a more thorough analysis.
Consumers in Indonesia are ostensibly more upbeat than those in other emerging economies. In China, consumer confidence hovers below its Jan 2008 level. And in spite of the bubbles and wealth talk in China, confidence hasn’t been this low since 2003. In Brazil, consumer confidence is back to peak levels before the onset of the U.S. recession.
I provided a snapshot of global consumer confidence. Generally consumers do portray the ongoing confidence struggle, especially in the U.S., that plays out in the IMF’s muted growth forecast.