The global economy will grow by 2.8 percent next year following a decline of 1.1 percent in 2009, according to the latest economic review released by the National Institute of Economic and Social Research (NIESR), a British think-tank.
The global economy is recovering from an unprecedented post-war reverse, which saw output fall by a cumulative 2.4 percent between the onset of the crisis triggered by the collapse of Lehman Brothers and the first quarter of 2009, with a decline of 4 percent in the Organization for Economic Cooperation and Development (OECD) economies over the same period, said NIESR.
Though the financial crisis has been costly, recovery has set in faster than expected, said Martin Weale, director of NIESR.
The think-tank estimated that the global output loss reached roughly 850 billion U.S. dollars by the first quarter of 2009 and the government debt levels in the OECD economies had risen by about 25 percent in aggregate, entailing many years of higher tax burdens to come, a rise in long-term real interest rates and lower levels of the income-generating wealth.
It predicted that a further 2.5 million people would lose their jobs in the OECD economies by early 2010.
The resumption of growth has been led by Asia, in particular China, said NIESR. It predicted that China would witness a GDP growth of 8.2 percent this year and 9.3 percent in 2010.
Hefty packages of fiscal stimulus in Asia such as China, South Korea and Japan, have cranked up domestic demand, said NIESR. Due to the strengthening of domestic demand in the traditionally export-oriented economies in Asia, it expected that the large current account surpluses in China and Japan would narrow over the next few years and would help sustain the recovery in the rest of the world.
Prospects for the United States have improved mainly thanks to the rally in markets, which has brought down risk premia in both bond and equity finance from extraordinarily high levels, according to NIESR.
It predicted that the U.S. economy would shrink 2.8 percent this year and gain a growth of 1.3 percent next year.
As for the euro zone, NIESR said the area has been hit hard during the recession by both domestic and external factors and the strength of euro would cause net trade to dampen the recovery next year. As a result, the GDP will grow by only 0.8 percent.
In the face of the recovery, the think-tank warned that it is important to bear in mind that recent improvements had been reliant on a number of temporary factors such as fiscal expansions, quantitative easing and other interventions to support banks and reduce banking sector risk as well as a turn in the inventory cycle.
Thus, there is a risk that when these short-term effects and measures are lifted, several economies may dip back into recession./.