Should we accept, at face value, the latest bullish assessments of economic growth for the US, Asia, Japan and much of the rest of the world, except Europe?
The question arises from the release of forecasts from the OECD (the Organisation for Economic Co-Operation and Development) and the United Nations.
Both note there are a number of questions, such as the eurodebt crisis, government spending and budgetary imbalances, uneven recovery and still high levels of poverty and unemployment, but both forecast pretty solid growth for this year and 2011, given those circumstances.
Both forecasts see the global economy being supported by strong growth in China and then the rest of the Asian region.
That’s both a positive and a negative if the attempts to slow the Chinese lending and property booms fail or work too well.
If anything, the UN forecasts are a bit more conservative than those from the OECD, especially for China, Japan, the US and Europe.
Perhaps the most bullish part of the OECD mid-year report was its view that unemployment has probably peaked around the world at current levels of 8.5%.
That compares with previous forecasts of a peak of around 10%.
But the 2011 growth forecasts for the US, Japan and Europe are not high enough to drive unemployment much lower.
It will be a long process to get meaningful reductions in jobless numbers in the US and across Europe.
Nor are the growth forecasts really strong enough to offset the debt and spending cuts that will have to start, especially in Europe (the US and Japan won’t really start) or to generate a rise in taxation and other revenues.
That’s why the forecasts have to be treated carefully.
For example the OECD says euro area growth is forecast at 1.2% this year and 1.8% next year, a bit better than the last forecast of 0.9% and 1.7%, but hardly barnstorming.
The UN forecast agrees: it sees overall output growth in the eurozone remaining subdued at 0.9% this year and 1.5% in 2011.
But The UN report warns that the pace of the recovery remains subdued and "far from sufficient to recuperate the job losses and close the output gap created" during the recession.
The OECD said that Australia will see strong growth in 2010 and 2011, above its trend rate.
"Activity might expand by as much as 3.25% and 3.5% in these two years, driven by booming exports and domestic demand.
"The unemployment rate is expected to fall below 5% by the end of 2011, in a context of moderate inflation.
"Managing the exit strategy from the crisis is less problematic in Australia than in most OECD countries. The current tightening of monetary and fiscal policy is welcome given the rebound in activity.
"To maintain robust and balanced growth in the medium term, the economy’s supply capacity must be strengthened, including in the real estate sector where demand, bolstered by immigration, is expected to remain strong.
”The business climate and business confidence are strong. Firms have significantly expanded their investment plans, particularly in the mining sector, where strong demand from Asian countries has led to marked improvement in the terms of trade and higher profits,” the OECD said
That’s right in line with the views of the RBA and the government.
Looking at the rest of the world the most striking points remain the importance of China to solid world growth, and the irrelevance of Europe.
The recovery is leaving it behind and the continuing debt worries will see it fall further behind, especially as government spending cuts hit home.
China remains vital for the globe: without it the growth for the 31 members of the OECD will be 2.7% this year, and 2.8% in 2011, more than the 1.9% and 2.5% forecast last November.
Including China, the global economy will expand 4.6% this year and 4.5% in 2011, compared with an average of 3.7% during the decade through 2006.
Last November it predicted growth of 3.4% for 2010 and 3.7% next year. China’s growth is forecast at 11.1% in 2010 and 9.7% next year, both higher than the November forecasts of 10.2% in 2010 and 9.3% next year.
In the US, growth is projected to rise by 3.2% this year and 3.2% in 2011. Japanese GDP is expected to expand by 3.0% in 2010 and by 2.0% in 2011.
The UN report is looking for global growth of 3% this year and 3.2% in 2011.
But it warns that the recovery is too weak to close a global output gap.
The study revised upward a forecast of world growth of 2.4% made in January, and said a stronger recovery was needed to recover job losses and close the output gap resulting from the deep slump experienced in 2009.
"Unprecedented worldwide government support has buttressed global financial markets while progressively stabilising them," it said
The report however noted that the recovery was uneven across the world.
"Although growth prospects for some developing countries are encouraging, economic activity is lacklustre in developed economies and below potential elsewhere in the developing world," it added.
It said jobless rates were expected to remain high for a protracted period in most developed countries while many wo
