2011: highs and lows await World Economies

2011 has finally come. In Chinese tradition, this year is referred to, as the year of the rabbit.  As always, every New Year ushers in new expectations. But what expectations await World Economies in this year of the rabbit?

The Chinese calendar tells us that the Year of the Rabbit is a time of peace and calm, a time when conflicts are resolved and problems can be solved. It is a time when a person can breathe and relax. So what expectations can we have for the world at this time in terms of economics?

As much as the year of the rabbit should be a time of peace and prosperity, the forecasts are still not looking optimistic enough. Goldman- Sachs predicts that by the middle of the year, the unemployment rate will go up to 10.75%.  That is an important point that we need to look at in terms of economics. This already points to the fact that 2011 may not be very promising.

A general weaker growth of World economies has been projected

However there are some other criteria that we should pay attention to when making a forecast.   Despite the pessimistic prediction for employment, Goldman Sachs also predicted that there will be a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at a potential pace of above 3½% in late 2011.

Another thing is that the inflation rate will be extremely low this year.  Low inflation is good for consumers; it means that costs are not rising faster than their paychecks are.  However, some commentators say that low inflation introduces uncertainty; but overall, for the regular consumer, it is a good sign of better days ahead as 2011 unfolds.

Overall, the Goldman Sachs report notes: “…we see risks that could upset these markets. On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening. In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds. On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments”.

Morgan Stanley also talked about certain risks in their 2011 forecast report.  The company talks about six main risks that they see for the New Year:

“Two of these risks are domestic: Housing prices could decline by more than the 6-11% we and our housing research team expect.  With seven new GOP governors coming into office, and both budget and funding pressures persisting, state and local government spending cuts could be more intense than we anticipate.  Four of the risks represent intensification of global challenges that are already in our baseline global view: more spillover from Europe’s sovereign crisis; more Chinese monetary tightening; a surge in crude quotes to $120 or more; and politics interfering with appropriate policy responses.  On the last risk, the looming battle over budget priorities seems likely to crystallize in a showdown over increasing the federal debt ceiling, which could prove disruptive to financial markets”.

Despite the fact that some of the forecasts are different, however, there is one thing that we should bear in mind: that economy is entering a new stage, and hopefully soon we will be recovering from the period of recession which has hit economies across the globe for the past few years.

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