Global Economic Problems Institute: Global recovery gains strength

Global Economic Problems Institute: Global recovery gains strength

Azerbaijan, Baku, July 5 / Trend/

Global Economic Problems Institute Director Natig Shirinzade especifically for Trend.

Economic data shows that the global economic recovery is intensifying, but concerns remain about the sustainability of sovereign debt in a number of euro zone countries. Meanwhile, the resumption of market volatility increases the risk of a second round of the recession.

Global recovery is gaining momentum. Based on the Fitch baseline scenario, global GDP will grow by 3.1 percent after a 2.5-percent decrease in 2009 thanks to the restoration of global trade, changes to the commodity cycle and soft fiscal and monetary policies.

The main growth factor is emerging markets. In addition, the gradual recovery of consumption in the United States and a significant recovery of consumption in Japan are also promoting growth. Meanwhile, activity in the euro zone remains sluggish. Despite numerous plans to tighten fiscal policy, which are under consideration in developed countries, continued soft monetary policies should support further economic growth in 2011 at slow paces of recovery. Macroeconomic uncertainty also increases due to inflation and deflation risks. Without a doubt, a significant risk remains of making the wrong policy decisions.

Although the sharp tightening of fiscal policy to court stronger demand in the private sector may slow growth in some countries, the announcement of robust strategies to ensure sustainable situation with state debt in the medium term should help to maintain confidence and create conditions for developed economies to grow next year. A major factor will be the private sector, Fitch reported.

The crisis of confidence in the euro zone reflects the seriousness of macroeconomic imbalances in the region, skepticism about the ability of economies to make the necessary adjustments in the absence of exchange rate flexibility, as well as doubts about the strength of political commitment to the unity of the euro zone given initially hesitant and reluctant support for Greece. However, Fitch believes the risk is low that the euro zone will collapse in the medium term.

Most economies in emerging markets remained stable during the crisis, restraining negative effects on their sovereign balance sheets and maintaining favorable growth prospects. However, although their numbers were higher than originally expected, growth prospects in emerging markets continue to exert considerable influence on events in developed countries.

Fitch expects a strong recovery in GDP growth in emerging markets up to 5.8 percent in 2010 and 5.6 percent in 2011, relative to 0.9 percent in 2009. The major contributing factors are the recovery of global trade, global and domestic incentives through fiscal and monetary policies, higher commodity prices and favorable fundamental factors. Asia will also likely set the pace, while growth will be weaker than in developed European countries, which felt a significant imbalance due to the crisis. There is also significant exposure to commercial and banking risks in the euro zone. Monetary policies in developed countries will increase the risks of inflation and overheating in emerging markets unless they are open to a significant increase in the exchange rate.

The convergence of sovereign ratings in emerging and developed markets is also underway, Fitch reported. In early 2010, the ratings of four emerging economies increased - Indonesia and Lebanon, as well as Azerbaijan and Panama. The ratings of the latter two were raised to the investment grade. Only Jamaica's rating was lowered. The ratings of Greece, Portugal and Spain were also lowered.

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