Despite a slow and bumpy local recovery, global economic forecasts show that world annual economic growth is set to reach 4.5 per cent during 2010, according to Angela McGowan Northern Bank Chief Economist.
The findings of Northern Bank’s 'Global Scenarios' report 
shows that global recovery is on track with most regions across the world showing improvements, although there are indications that momentum behind recent growth has peaked. Ms McGowan said that whilst the global recovery has made good progress since the start of the year with US demand picking up sooner than expected and Asian growth continuing to soar; there are also new risks that have emerged in recent months. European government debt and its impact upon financial markets may mean the path to world economic recovery will not be smooth although the recent uncertainties are unlikely to lead to a double dip in the global economy.
Angela McGowan, Northern Bank Chief Economist explained:
"The global recovery has remained on track this year and has been even stronger than expected in most regions. Unfortunately, the good macro news has been overshadowed by the widespread contagion from the euro debt crisis in global markets. This has forced the policy agenda to shift focus in past months from exit strategies to reintroduction of liquidity facilities to support the fragile financial system. Without doubt the recent problems in Europe have the potential to take us into a ‘double-dip’ scenario, particularly if there is aggressive public spending cuts amongst G7 countries. However, our main forecasts don’t show the current euro debt crisis to lead to another global financial crisis and in Northern Bank’s view this would not be enough to create a double dip."
The report forecasts growth for the world’s largest economies including China which is set to grow at 10.2 per cent, The USA is expected to grow this year by 3.4 per cent, Japan by 3.3 per cent and Euroland is now forecast to grow by 1.3 per cent in 2010. Out of the four largest economies, Euroland was the only region to have its growth forecast revised downwards since the last report by 0.5 per cent.
Ms McGowan said that growth prospects in Euroland have been revised lower due to disappointing growth in Quarter 1 and the fact that the euro debt crisis is placing a stronger drag on growth in 2010 than expected, adding that a weak euro is providing a strong counterweight to any expectation of a dramatic fall in growth. She said:
"The outlook in Europe is being shaped by the negative impact of the debt crisis on growth and public spending cuts but this is being countered by a positive contribution from the weakening Euro and the resulting improvement in competitiveness. Since Northern Bank’s last Global Forecasts in March the Euro has depreciated by about 8.8 per cent against the dollar. The negative impact from fiscal tightening is also countered by a positive growth contribution from interest rates, which due to the debt crisis are expected to stay lower for longer."
Northern Bank forecasts are revised slightly higher for the US and Asia with both being revised upwards by 0.2 per cent. Explaining the increase in growth expectations Ms. McGowan said:
"In the US, consumer revival has been very robust and investment spending has gathered pace which is reflected in an increase in durable goods orders. Labour market improvement is the key ingredient for sustainability of the US recovery and despite the setback in May, Northern Bank’s forecast indicates that US GDP growth will remain solid enough for the US labour market to generate between 200,000 and 250,000 new jobs in quarter two."
"Growth in Asia accelerated significantly in early-2010 and we have adjusted our GDP forecast up for all major Asian economies, including China and Japan. Our upward revision mainly reflects a very strong Quarter 1 10. We expect GDP growth in Asia to peak in Q1 as the positive impact from inventory adjustments and policy stimulus gradually wanes and the impact from tightening kicks in, not least in China. So far we see a modest impact from the European debt crisis. With fiscal policy flexibility intact, Asia should continue to perform well even with a more negative scenario for Europe."
The Global Scenarios report - June 2010