EIU global economic forecast nov 2010

The recovery is softening, with the weakness of private-sector jobs creation giving particular cause for concern Inflationary pressures remain very weak —both the core consumer price ind

China

Global economic forecast

November 16th 2010

The recovery is softening, with the

weakness of private-sector jobs creation giving particular cause for concern

Inflationary pressures remain very weak

—both the core consumer price index and the core personal consumption

expenditure index are hovering just

above zero in year-on-year terms

House prices have stabilised, but a large stock of houses on the market now or coming in the near future will exert

renewed downward pressures on prices

Europe’s economy is recovering but the fiscal crisis has raised risks

The economy is burdened with spare capacity and urgent need for fiscal consolidation

Unemployment has risen only

moderately owing to wage subsidies, but employment recovery will be slow

Greece is likely to need a

re-structuring of its government debt despite a massive rescue package

Export performance in Japan will

deteriorate over the remainder of 2010 and into 2011, reflecting a deceleration of Chinese growth and continued yen

strength

The urgent need for fiscal consolidation greatly limits room for further fiscal

stimulus beyond measures already

approved

Weak domestic demand is putting

downward pressure on Japanese prices again, so that deflation continues

Chinese growth has been supported

by massive stimulus, but this has

aggravated existing imbalances

India is growing strongly on the back

of robust domestic demand However, fiscal pressures remain and will act as

a constraint on potential growth

Brazil’s performance has been driven

by demand for commodities from

China and by solid domestic

consumption

Russia’s recovery is supported by the rise in oil prices over the past year

Oil consumption growth will bounce back in 2010, led by the developing world and the US Consumption

growth in the EU will remain subdued

Output restraint and significant spare capacity in OPEC producers

suggests ample supply Any

escalation in geopolitical tensions could disrupt our supply forecasts

Loose global monetary conditions and investors’ search for return will support prices

Rising emerging market incomes and urbanisation will underpin medium-term demand growth

Years of underinvestment, particularly

in agriculture, will push up prices

In the near-term, many raw materials suffer from temporary supply shortfalls

Gold prices have been strong, fuelled

by vibrant investor demand, while

fundamentals remain weak Persistent economic uncertainty will support

prices in 2010-11

The Federal Reserve will not raise its policy rate until the third quarter of 2012

The Greek crisis has triggered ECB bond purchases; the central bank is also now unlikely to raise rates until the third quarter of 2012

Japanese policy rates will be held at emergency levels until late 2012

The European fiscal crisis also raises new concerns for banking sector

stability

Concerns about the US economy and Fed monetary policy have helped to weaken the US$ against the euro in recent weeks

Expectations of earlier rate hikes in the

US and lingering concerns about the fragility of the euro zone will support the US$ against the euro over the longer term

The yen will remain firm against the

US$, reflecting heightened risk

perceptions and Japanese institutional investors’ home bias

- A number of developed sovereigns default as public debt surges

- Tensions over currency manipulation lead to a rise in protectionism

- New asset bubbles burst, creating renewed financial turbulence

- Developed economies fall into a deflationary spiral

- The global economy experiences a double-dip recession

16 16

16 15 15

- The Chinese economy crashes

- The euro zone breaks up

- Economic upheaval leads to widespread social and political unrest

+ Emerging-market growth surges

+ Confidence revives, prompting a stronger rebound in demand

10 10

9 8 8