|Outlook for key developed economies cause for hope.|
Tuesday, 17th September 2013
Source : Rabobank
The key developed economies are finally experiencing a long-needed tailwind.
The US economy grew 1.7% (annualised) in the second quarter of this year and GDP is currently 5% up on the first quarter of 2008 level.
The recovery is also continuing to gather momentum in the UK, where growth appears to be picking up in the second half of the year. The performance of Japan’s economy since ‘Abenomics’ were introduced has been a positive surprise and the economy of the eurozone is also slowly starting to revive.
This means a slightly improved outlook for exports for the Dutch economy. This analysis is presented by Rabobank economists in their Economic Quarterly published today.
Eurozone clambering out of recession
The eurozone in the second quarter managed to clamber out of a recession that had lasted no less than 18 months. Although the currency union is not expected to slide back into recession again, growth will remain brittle in the period ahead owing to further austerity measures, reforms and private-sector balance sheet repairs.
Accordingly, the Rabobank economists are only expecting slight growth for most northern countries in the second half of 2013 and a continued mild contraction for the southern Member States. In 2014 the improvement is expected to gradually continue and the eurozone GDP will grow 3/4 %, primarily on the basis of a positive contribution from net exports. But this growth will not yet be strong enough to trim back the eurozone’s high unemployment (12.1% in June).
Sick man or growth engine?
This Economic Quarterly devotes a separate section to the German economy. The Rabobank economists find that this strong economy of today is experiencing a policy stagnation that harbours risks for tomorrow. With elections approaching, there is scant focus in Germany on the necessary domestic reforms.
The medium-term outlook is less rosy than Germany’s current economic situation would suggest. Domestic policy will determine whether Germany will continue to be Europe’s growth engine or become its sick man once more. In view of the current opinion polls and relations between the Federal Assembly and the Federal Council the likelihood of policy changes is small however.
Worldwide rebalancing unfolding in undesirable way
Although the developed economies are showing some positive signs, the Rabobank researchers are expecting global GDP growth to remain weak this year (3.25 %). The reason for this is the undesirable way in which the worldwide economic rebalancing is unfolding. It would be more effective if countries with a current account surplus stimulated their domestic demand and hence became less vulnerable to external shocks.
For this enables countries with a deficit to benefit from stronger external demand, and address their current account imbalances in the meantime. Countries with a current account surplus unfortunately still do not appear to be attempting to stimulate domestic demand. Fearful of a hard economic landing Chinese leaders continue to oppose a full policy turnaround. Nor have other countries with a surplus, both in the emerging and the industrialised world (Germany, for instance), taken significant steps yet to stimulate domestic demand.
As a result global demand will continue to be unnecessarily hamstrung for an extended period, making the process of rebalancing and debt reduction in countries with a current account deficit even more painful. The US, with an economy that appears to be resolutely continuing on its growth path despite the substantial automatic austerity measures that have become effective, will be a major driver of a global economic upturn. Its announcement of a tapering of monetary stimulation initially spooked the markets, but reflects the strength of the economic recovery.
The Netherlands not out of recession yet
The contraction of the Dutch economy slowed in the second quarter of this year compared to the preceding quarters. With the exception of the second quarter of 2012, the Dutch economy has already been in recession for two years. And although the improved outlook for exports is welcomed, real growth is nowhere yet in sight.
Despite the openness of the Dutch economy, some 70% of its economic activity continues to depend on domestic spending. A vigorous economic recovery on the basis of export growth alone is therefore not possible and will fail to materialise as long as households’ disposable incomes do not increase. As domestic spending continues to fall, it will take to mid-2014 before the recession comes to an and.
Unemployment will therefore continue to rise – to 6.75 % in 2013 and to 7.5 % in 2014 – and the number of business failures will remain high. The Dutch economy is consequently set to contract by 1.25 % in 2013 as a whole and to post zero growth in 2014.
The Economic Quarterly is available on https://economics.rabobank.com