Capital Economics’ Global Economic Outlook for the fourth quarter predicts that the world economy will expand by just 2.8% next year, down from an expected 3.1% in 2012.
“The global recovery has slowed once more and growth is likely to remain subdued for at least another year,” the group said. “Admittedly, prospects for the US are relatively bright, but this is not sufficient to offset mounting problems elsewhere.”
The consultancy’s forecast is significantly below that of the International Monetary Fund, which expects to see global growth of 3.5% this year and 4.1% in 2013, according to August’s World Economic Outlook.
Capital Economics forecasts the US to achieve growth of 2% in both 2012 and 2013, aided by the rebounding housing market, a well-capitalised banking sector and falling household debt. However, continued fiscal consolidation and weak external demand mean growth is unlikely to take off strongly.
The picture in eurozone is significantly more negative and “the worst of the crisis is probably yet to come”, with the consultancy expecting to see the economy of the 17-nation currency bloc shrink by 2.5% next year. This compares with the 0.7% contraction thought to have taken place in 2012.
Capital Economics warned: “The ECB’s announcement of outright monetary transactions may help deal with one of the symptoms of the crisis – high borrowing costs.
“But it has not solved the underlying problems of peripheral countries, including unsustainable sovereign and external debt, chronic lack of competitiveness and fears of redenomination.”
According to the outlook, Greece is likely to exit the eurozone “within a matter of months” unless there are concrete improvements in the conditions surrounding it and the rest of the bloc. Other small peripheral members could follow, the consultancy added.
China is heading for a “weak rebound”, which will be held back by a slump in the property market, declining private-sector investment and weak export demand. India will see subdued growth on the back of the “outright” fall in investment and limited room for monetary or fiscal stimulus.
Japan, meanwhile, is likely to return to very low growth and close-to-zero inflation in 2013, while the underlying conditions in the UK will remain weak even though the country will have pulled itself from double-dip recession by the end of the year.
Despite the downbeat forecast for 2013, Capital Economics predicts world growth will rise to 3.3% in 2014: “Beyond 2013, the outlook is a little brighter – provided we are right in thinking the worst of the eurozone crisis may have passed by then.”
