World Economy Awaits Results Of European Bailout Plan

OTTAWA, Nov. 28, 2011 /CNW/ - The European financial crisis is already affecting the global economy - and the extent of the impact will be determined by the success of plans to help Greece and other troubled countries meet their debt obligations, according to The Conference Board of Canada's World Outlook-Autumn 2011.

"The major risk to the world economy is the European sovereign debt crisis," said Kip Beckman, Principal Research Associate. "The current understanding to reduce bank holdings of Greek debt would provide for an orderly restructuring. But a 'disorderly' default could occur if Greece leaves the eurozone or if bailout funds are delayed. Such an outcome would spread across the EU and could send the global economy into a tailspin."

There is real danger of the eurozone countries slipping back into recession over the next few quarters.  In addition to fiscal austerity measures now being implemented by governments, exports have weakened, stock prices have plummeted, and the region's banking system needs public support to recapitalize. Moreover, the 1 trillion euro fund may not be enough to stabilize European banks and debtor nations such as Italy.

For more on the European debt crisis, read Glen Hodgson's Hot Topics in Economics commentary, Greece, Italy and Inevitable Austerity: No Easy Way Out (http://www.conferenceboard.ca/economics/hot_eco_topics/default/11-11-14/Greece_Italy_and_Inevitable_Austerity_No_Easy_Way_Out.aspx).

The other two power blocs in the global economy - the United States and Japan - are also struggling. In Japan, real GDP will decline this year before rebounding and growing by 2.4 per cent in 2012.

The probability of the U.S. economy slipping back into recession is presently at a disquietingly-high 40 per cent, although growth of 2.5 per cent recorded in the third quarter has eased fears somewhat. While Europe's difficulties pose a major threat to the U.S. economy, they are not necessarily mortal. Growth prospects in the United States are better than in most countries in Europe because of superior economic fundamentals - profitable firms and a gradual reduction in household debt.

Assuming the European sovereign debt and banking crises can be stabilized, growth in emerging countries will prevent a global recession. Following growth of 4.3 per cent in 2010, the world economy is forecast to expand by 3 per cent this year and by 3.2 per cent in 2012.

The emerging world doesn't face the type of instability that has plagued Europe, the United States, and Japan. Many countries in Latin America will continue to benefit from high commodity prices, leading to growth of more than four per cent both this year and next year. Chinese demand will drive economic activity in the Asia-Pacific region. China is expected to experience a "soft landing", as the government's action to contain inflationary pressures eases growth from 9.1 per cent in 2011 to 8.6 per cent in 2012. Overall economic growth in the Asia-Pacific region is expected to exceed seven per cent both years.

SOURCE CONFERENCE BOARD OF CANADA

For further information:

Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext.  448
E-mail: corpcomm@conferenceboard.ca

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