The years 2010-11: Today's post-crisis reality and expectations for countries and businesses in 2011

Globally, the general consensus among authoritative global financial institutions, such as the IMF, World Bank, transcontinental associations such as the OECD, and carter alliances such as the OPEC is that the world economy in 2011 will continue its recovery from the crisis but will remain in a fragile condition will still make life difficult for countries, economies and businesses. Expectedly, the economic growth values for 2011 projected by these organizations differ significantly, but all point to the fact that the global economy’s growth engine will be spearheaded mostly by the BRIC states, notably China and India as well as other natural commodities exporting nations.

Thus, according to the IMF’s Biannual World Economic Outlook (WEO) released in October 2010, the world economy will grow to 4.2% in 2011, down from 4.8% in 2010, the World Bank forecast 3.2%, up from 2.7% in 2010, the OPEC expects a 3.6% growth rate, whilst the OECD expects the global economy to grow by 4.5% in 2011, making it the most optimistic prognosis. Besides, all these authoritative organizations completely ruled out the possibility of a sharper slowdown or stagnation that could push the global economy into a ‘double-dip recession,’ a state, where economic growth recovers and then falls back into a second period of more sustained downturn. 

“The general consensus among authoritative global financial institutions is that the world economy in 2011 will continue its recovery from the crisis but the recovery will be very fragile.”

The avoidance of a worse-case scenario has been attributed to the continuation of the ongoing robust growth in the economies of the Asian giants — China and India — that are expected to prop up global economic growth in 2011. Additional growth momentum is expected to come from other emerging economies, which, according to the IMF’s WEO projections, are expected to expand at average of 6.4% in 2011, while the more advanced countries, expected to be a drag on global economic activities, will only post an average growth of 2.2%. 

Broken down by regions and countries, the U.S. economy is expected by the IMF to grow by 2.2% and the Euro zone by 1.5% in 2011. According to experts’ reports, progress toward recovery will remain ‘fragile, gradual and uneven’ among European countries ‘because of the scars left on them by the global crisis.’ For instance, economic growth in Germany, Europe’s largest market, is expected at 2.0% in 2011, down from 3.3% in 2010, a trend that the IMF has attributed to weak growth expectations in the EU zone. One of the reasons for this is the debt crises in several EU states, a trend, which, according to IMF Managing Director Dominique Strauss-Kahn, will continue to pose the biggest threat to the global economic recovery in 2011.

Unlike the Western economies, the real global economic drivers in 2011, just as in 2010, will be China and India, whose economies are projected to grow by 9.6% and 8.4%, respectively.  “China's strong and sustained growth over the past several years has served as a linchpin for global trade, benefiting exporters of commodities and capital goods,” IMF said in the report. Airing a similar view, World Bank Group President Robert Zoellick noted that China’s continued growth is a very important force for global economic recovery. Using the Chinese economy as a manifestation of the dawn of ‘a new multi-polar economy,’ Zoellick stressed the importance of multi-polar knowledge in handling the current situation, as rising economies contribute new experiences to the world economy, while warning against resurgence of protectionism in the post-crisis period. 

It is worth noting here that the 2011 forecasts — for both national and global economies — are poorer than those of 2010. Thus, according to the IMF, the global economy in 2011 will face an unbalanced recovery, which will be more sluggish in advanced countries, and much stronger in fast developing countries. Explaining the reasons behind the reduced tempo in global economic recovery, IMF Chief Economist Olivier Blanchard has attributed the ‘loss in growth momentum’ to the phasing out of some of the positive forces — such as the inventory investment and fiscal economic stimulus packages — that had prompted to the recovery in the first place. “These forces have been replaced by consumption and investment, but today, consumption and investment trends are not very strong, especially in advanced countries.” 

Another reason for the negative trend, according to the IMF report, is fact that ‘corrective policies’ have failed to trigger the expected smooth transition of public support to private demand, a situation that has undermined sustained recovery from the global financial meltdown. “Today, the financial system is not in a good shape, which means that some firms still have a hard time borrowing, while the housing market is in shambles, evident in the enormous stock of unsold houses. All these factors are brakes on strong consumption and strong investment,” Blanchard added.

The global oil market, another major indicator of the state of affairs in the world economy, will continue to remain in a volatile mood in 2011, as price fluctuations will remain much on the same unstable trajectory as they were in 2010. Thus, according to demand forecasts for 2011 compiled by OPEC, a major player in this industry, the global demand for oil is expected at 86.95mln barrels per day, up from 85.78mln barrels in 2010. The increase in demand is expected to be fueled by the increment in oil consumption in the OECD states in the Q3/Q4 of 2010, which is expected to spill over to 2011. These trends are expected to trigger higher demand for oil from the OPEC member states to 29.2mln barrels per day in 2011, up by 400,000 barrels per day, compared to 2010.  

On the global forex market, the ghost of a possibility of a currency war, one of the key issues at the Seoul G20 Summit in November, will define the currency market landscape, as the world major economic players, namely, the United States, EU states and China, are to lock horns over the issue of using artificial devaluation of their national currencies to gain competitive edges on the international markets. The general forecast consensus is that euro will maintain its ‘current superiority’ over the U.S. dollar, a situation that will be worsened further by the U.S. FRS’s decision to inject additional $600bln into its economy via a quantitative easing policy to boost economic activities on the domestic market, a fiscal measure that has angered both Beijing and EU members, especially Germany. On the other hand, China’s refusal to upgrade its local currency value has put Beijing at a discord with Western countries. 

How these forex intrigues will eventually play out in 2011 will become clear next year, but the existing differences among the world economic behemoths have not prevented the likes of JP Morgan Chase & Co. and Bloomberg to forecast their euro-dollar relations for most parts of 2011. Thus, according to Bloomberg, the euro will value $1.45 in Q2 and then rise to Q3 in 2011, while JPMorgan Chase & Co. sees euro averaging $1.30 against the U.S. legal tenders in the same quarters. 

The general consensus forecast for 2011 is the global economy is entering a post-crisis era, an era that will be different for different countries, depending on the degrees of damages suffered during the outgoing global meltdown, the lessons learnt from the crisis, the scale and relevance of the national anti-recession strategies put in place to battle the economic downturn, stimulate sustainable recovery and prevent future hiccups in the local economies.