Developing countries being counted on to bring world economy through European fiscal crisis

OTTAWA, July 23, 2012 /CNW/ - Developing countries have been given the tough task of supporting the global economy while Europe struggles to contain its debt crisis. Europe's woes will slow the world economy to tepid growth in real gross domestic product (GDP) of 2.6 per cent in 2012 and three per cent in 2013, according to The Conference Board of Canada's World Outlook-Summer 2012.

"The eurozone's financial crisis has spread beyond Greece to Spain as some major Spanish banks have had their credit downgraded, and European authorities are currently in damage-control mode," said Kip Beckman, Principal Economist. "The eurozone will contract by 0.4 per cent this year and meagre growth of 0.7 per cent is anticipated in 2013."

"The situation in Japan and the United States is somewhat better, but their economies remain fragile and susceptible to additional turmoil in Europe. The good news for the global economy - and for Canada - is that we don't expect the U.S. economy to slip back into recession this year."

The Conference Board of Canada's U.S. Outlook-Summer 2012 calls for the U.S. economy to expand by 2.3 per cent this year and 2.7 per cent in 2013 - assuming that the eurozone doesn't implode, the Chinese economy avoids a crash, and the Obama administration and Congress relieve some of the uncertainty over the country's fiscal health (such as the future of the Bush-era tax cuts due to expire this year).

U.S. job creation, which was running at better than 200,000 a month in the winter, has weakened - in the April to June period job creation has averaged only 75,000 per month. Employers are undoubtedly exercising caution because of the crisis in Europe. On the positive side, firms have not been increasing layoffs; the global economic uncertainty has simply made them reluctant to hire new employees.

The weak economic outlook in the developed world is beginning to strain growth in developing countries. Growth is also weakening in Latin America and the Asia-Pacific region, which rely on Europe to support demand for their exports.

China is the key trading partner for every country in the Asia-Pacific region, and its leaders are using interest rates and infrastructure spending to stimulate domestic demand in an effort to maintain growth above eight per cent over the next two years. For the region as a whole (excluding Japan), real GDP is forecast to increase by 6.4 per cent this year, on the heels of 7.1 per cent growth in 2011.

Demand from Asia is also supporting growth in Latin America. But tumbling commodity prices - especially for oil - and political uncertainty are expected to slow real GDP growth to 3.7 per cent in 2012. In particular, the interventionist policies of the Argentine government toward foreign investors and its appropriation of private pension funds could further drag down the region's outlook, as could the polarized social and political climate in Venezuela.


For further information:

Links to publications:
World Outlook
U.S. Outlook


Brent Dowdall, Media Relations, Tel.: 613- 526-3090 ext.  448

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