Positive sentiment about global economic growth is fading

In most of the world’s major economies a slowing of growth is currently taking place. What is shaping these growth patterns and how geographies are dealing with the impact come under analysis in Deloitte’s newly-released Global Economic Outlook 3rd Quarter 2012. Entitled ‘The Summer Lull’, the Deloitte report indicates that the positive sentiment regarding the global economy is fading.

As one of the major influences on the global economy, the Eurozone crisis is among the topics highlighted in the report. Dr. Ira Kalish, Director of Global Economics, Deloitte Research, explains in his foreword, that each time the Eurozone starts to seem more stable, “the crisis rears its ugly head again.” The result is downward movement of European economic activity and increased uncertainty. Both of these factors, in turn, have a negative impact on growth everywhere else.

The Deloitte report indicates, a deceleration of growth in most of the world’s major economies is being felt.

“We are seeing new policy responses in some markets, changing direction of interest rates and currencies, and a higher degree of uncertainty than at almost any time in recent memory,” Dr. Kalish, said. With its analysis of the conflicting forces at work in the search for a solution to the Eurozone crisis, Deloitte’s Global Economic Outlook seeks to make sense of the confusion surrounding the issue.

In the Deloitte Global Economic Outlook report, the US economy comes under the spotlight, with the contagion effect from Europe constituting one of the five reasons, and also the most worrisome. Other reasons to worry are a deepening of the liquidity trap that makes the Federal Reserve’s task of managing monetary policy more difficult, structural problems in the labor market, a sharp reduction in the pace of new business formation, and private sector debt reduction that still has a long way to go. Given the very slow growth now under way, and given the five reasons for worry, the article suggests that, economically-speaking, the United States may be running out of luck.
The other major economies are also facing different challenges that include:
China: The Chinese government is trying to strike a balance between the economic slowdown and its banks’ troubled balance sheets. Authorities are following a narrow path designed to minimize the downturn while avoiding a deeper financial crisis.

India: Uncomfortably high inflation and a steady depreciation of the rupee are inhibiting a quick recovery for the Indian economy. Furthermore, external headwinds and the government’s failure to implement market-friendly reforms are taking their toll on business sentiment in India.

Russia: The Russian economy is currently enjoying strong consumer demand, historically low inflation, and increased government spending on infrastructure. Unfortunately, these factors are likely to be over-whelmed by the recession in Europe, the slowdown in China, and the decline in the price of oil. In addition, both domestic and external uncertainty are undermining investment, thereby hurting longer-term growth prospects.

Brazil: Brazil is experiencing a considerable slowdown this year as external demand decelerates. The country continues to experience strong consumer demand, but high levels of debt and default threaten to slow the consumer boom. Still, favorable monetary policy may set the stage for a rebound in 2013.

United Kingdom: The British economy remains 4.3 percent smaller than it was in 2007 and, despite a more aggressive monetary policy; it is unlikely that things will improve much in the near term.

Japan: The Japanese economy continues to swing dramatically between downturns and recoveries. External demand in Europe and China, reconstruction spending, changing monetary policy, and the possibility of a large tax increase may go a long way in dictating whether or not Japan can steady its growth engine.

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