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The Resource for the Global Finance Profession

Poll: Stagnation Probable for Most G7 Nations

  • By Andrew Deichler
  • Published: 2011-10-14

A new poll sees stagnation as probable for many of the world’s largest economies, with several facing a real possibility of recession.

Reuters surveyed about 350 economists, which see a dismal outlook for the majority of the G7. Despite a promising start and early forecasts predicting growth of 4.1 and 4.3 percent for this year and next, estimates now sit at about 3.8 and 3.6 percent. And even those lackluster numbers are not certain, as the sovereign debt crisis in Europe and political struggles in the United States could stunt growth severely.

Kevin Roth, Ph.D., Managing Director, Research and Strategic Analysis at AFP, agreed the global economy is likely to remain stagnant. "The headwinds confronting the global economy will keep economic growth in check for the foreseeable future," said. "Making sustained growth an even greater challenge is the fact that the number of fiscal and monetary tools still available to policymakers is limited."

In Europe, Greece continues to near default. The troika has agreed to bail the country out, but is calling for the Greece's minimum wage to be lowered – an austerity measure that is very unpopular with the Greek public. Austerity measures, political fighting and market fears are also causing unrest in Italy, which will likely remain in a recession through 2012 and miss government fiscal targets.

In the United States, economic conditions remain sluggish and could remain so through the 2012 election, as political parties appear deadlocked. Earlier this week, President Obama’s jobs bill was defeated by Senate Republicans. The GOP offered up an alternative plan later in the week, but given that it would involve repealing both the Affordable Health Care for America Act and Dodd-Frank, it is unlikely to gain any traction with Democrats.

Even China, seen throughout the year as a powerhouse, posted weak trade figures last week. Dr. R. Evan Ellis, Assistant Professor with the Center for Hemispheric Defense Studies, explained that while China is still one of the bright spots for the global economy, its export market is not impervious to its two biggest trading partners falling behind. “China’s slowing growth is tied to the situation in U.S. and Europe, so it’s a bit of a cycle that’s catching up,” he said.

Ellis added that after the last economic crisis, China completed quite a bit of infrastructure spending on projects with questionable return on investment. “I think that’s also starting to catch up to the Chinese banks right now and so you have some concerns about the increasing the fragility of their loan portfolios,” he said, “So one of the things you see now is a reluctance to further increase infrastructure spending, as well as slowdowns of imports of materials to produce products for export.”

Reuters suggested that the potential global market stagnation is something of a best case scenario… a situation that Ellis views with concern. “You have the fiscal limitations both on the European side and the U.S. side, and with interest rates near zero, you’re running out of room for further monetary measures; quantitative easing, etc. It is a pretty disturbing trend – not only the low growth but frankly what I see as the real concern is the lack of room for governments to maneuver. I am very concerned about both avoiding a new crisis, and managing one if we enter into it,” he said. 

Peter Hooper, chief economist at Deutsche Bank Securities, said in a research note that the global economic outlook hinges on the decisions of politicians on both sides of the Atlantic. "Whether it is the complexities of reaching unanimous agreement among 17 euro area members regarding the resolution of the sovereign debt crisis, or the increasingly polarized U.S. political scene, political risk may be the greatest source of shocks to the global economy today,” he said.

On a positive note, the economists polled see Canada’s economy posting strong numbers this year and next, a stark contrast to its G7 counterparts. They project that Canada’s banking sector and commodity driven economy should reap economic growth of 2.2 percent this year and 2.4 percent in 2012.

Copyright © 2015 Association for Financial Professionals, Inc.
All rights reserved.

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