Despite all the gloom and doom from Greece, Europe and the US, as well as the glum tone on sharemarkets here and offshore, there was one unchallenged bit of good news for Australia over the weekend.
As we pointed out on Friday in the Air Weekly, we sit in Asia, the growth engine of the world and the only region that has not been knocked off its course by the events in Europe, the US slowdown, or the still high levels of inflation in many countries, including China and India.
And there’s no chance of that changing for the next year or more, according to the International Monetary Fund.
“Global activity is projected to slow in the second quarter of 2011, and then reaccelerate in the second half of the year,” the IMF said in an update of its World Economic Outlook report released over the weekend.
Greater-than-anticipated weakness in US activity and renewed financial volatility from concerns about the depth of fiscal challenges in the euro area periphery pose greater downside risks.”
But the Fund was upbeat about the Asian region, despite the fears about inflation.
But don’t tell some of the dopes in big investment funds and the like that it might destroy their current trading strategies.
Globally, the IMF sees the world economy expanding 4.3% (down from 4.4% in April). It left a 4.5% forecast for next year unchanged.
Among major emerging markets, the fastest growth will be in China, which will expand 9.6% this year and 9.5% next year, unchanged from April projections.
That’s good news for China and for Australia (and New Zealand for that matter).
That is also despite the higher inflation in the year to May, the lower production data and falling bank loans, as well as the softer sentiment surveys from the manufacturing sector.
Forecasts for India were unchanged at 8.2% and 7.8%, despite rising inflation and interest rates, and the impact of corruption on business and consumer confidence.
The IMF cut growth forecast for Brazil to 4.1% this year, 0.4 percentage point less than April and 3.6% next year.
Overall, the IMF said developing nations will grow 6.6% this year and 6.4% in 2012, while advanced economies will expand 2.2% in 2011 and 2.6% next year.
Within Group of Seven countries, the IMF cut its 2011 forecast for Japan after the March earthquake and tsunami, now expecting a contraction of 0.7% this year and growth of 2.9 % next year. That compares with predictions of expansion of 1.4% and 2.1% in April (the April forecast for 2011 was prepared as the March 11 disasters happened, so was unrealistic).
In the eurozone, it now also expects 1% growth for Italy, down from 1.1% in April.
But expansion in the 17-nation euro area is expected to reach 2%, against 1.6% two months ago, thanks to higher-than- expected growth in Germany and France.
While growth in most emerging and developing economies continues to be strong, slowdowns caused by the devastating earthquake and tsunami in Japan, weaker than expected activity in the US, and shocks to oil supply weighed on the global expansion in the second quarter of the year, the IMF said.
Risks from higher commodity prices have eased compared with April, according to the agency.
It now assumes oil at $US106.30 a barrel in 2011, based on the average prices of UK Brent, Dubai and West Texas Intermediate crudes, compared with $US107.16 in April.
Crude oil for July delivery dropped $US1.94 to $US93.01 a barrel on the New York Mercantile Exchange on Friday, the lowest for a couple of months.
Still, global inflation has accelerated and pressures “have become increasingly broad-based” in developing economies, the IMF said, “reflecting a higher share of food and fuel in consumption as well as accelerating demand pressure”.
The supply chain disruption from the Japanese disaster has also contributed to lower US growth and investors are worried about a recent slowdown in activity, according to the report.
“Market concerns about possible setbacks to the US recovery have also surfaced,” the IMF said.
“If these risks materialize, they will reverberate across the rest of the world — possibly seriously impairing funding conditions for banks and corporations in advanced economies and undercutting capital flows to emerging economies.”
The IMF sees recent US figures as “more of a bump in the road than something more worrisome".
The Fund is expecting consumer spending and investment spending to continue “at a decent rate in the US", so no chance of a double dip recession.
And growth in the euro area, powered by more upbeat investment in Germany and France, has been better than expected, but concerns about the depth of fiscal challenges in some European countries have triggered renewed financial volatility (Greece).
The IMF identified the following regional trends:
• Asia: Growth in emerging Asia will decelerate only slightly from the very high levels of last year. Disruptions to regional production networks due to supply constraints from Japan appear contained, although some sectors, especially automobiles and electronics, could experience strains through the summer.
• Latin America will be bolstered by commodity exports and domestic demand, but the pace of growth will ease in some economies where policies have been tightening more aggressively to reduce r
