The global economy is likely to see a bumpy, brittle and below-par recovery next year after China’s slowdown shows signs of a turnaround, while Europe’s debt problems will drag on, a foreign analyst said yesterday.
The soft outlook suggests another year of volatility for financial markets across the globe with quantitative easing in the US and Europe set to boost inflationary pressure, Shroders PLC senior adviser and former chief investment executive Alan Brown told a media briefing in Taipei.
“The global economy may see a ‘BBB’ recovery next year, namely brittle, bumpy and below-par,” as the classic post-financial crisis outcome is playing out with shorter cycles, while the economy deleverages, Brown said.
Advanced nations will diverge in their recovery paths, with the US to fare better than the UK and debt-ridden Spain, Portugal, Italy, Ireland and Greece because of a better adjustment to the process, he said.
The recent improvement in US housing data indicates stronger residential investment, but downside risks remain as the drama over the “fiscal cliff” unfolds, Brown said.
“The US had better not deleverage all sectors at once,” he said.
The analyst voiced concern over mounting government debt in the advanced economies as it reaches the levels seen during World War II amid quantitative easing to stimulate economic growth.
Central banks have become the main buyers of government bonds as low yields drive the private sector to the sidelines, a trend that must reverse once quantitative easing ends and foreign exchange intervention slows, Brown said.
Meanwhile, unemployment is rising in peripheral Europe, where fiscal targets will be missed, Brown said.
He said Greece’s exit from the eurozone had been delayed, not avoided, and that Spain was next in line for a bailout, with both countries suffering from continued capital flight.
“Competitiveness is at the heart of the problem,” Brown said. “Peripheral Europe has lost competitiveness through higher inflation.”
The picture is encouraging for China after GDP growth in the third quarter slowed by its weakest pace in three years, the analyst said.
Major bellwethers, including the purchasing managers’ index, exports and fixed investment readings, have stabilized recently, the analyst said.
China’s benign inflationary pressure will allow monetary policymakers more room to maneuver, Brown said.