Belfast Telegraph

Saturday 12 July 2014

Optimism over global comeback as Europe swings back to growth

Optimistic: Danske Bank chief economist Angela McGowan

A swing back to growth for Europe has helped paint a more rosey picture for the global economy in the coming years, according to the latest report from Danske Bank.

In its report The Big Picture it said the European economy grew by 0.3% in the second quarter of 2013 after six consecutive quarters of decline.

"Despite the general improvement, growth in the euro area remains uneven with Germany and France expanding and Italy and Spain contracting," Danske Bank chief economist Angela McGowan said. "However the slowdown in the periphery countries is becoming less severe and things are generally moving in the right direction."

That means the Danish-owned bank expects the world economy to grow by 2.9% in 2013 and 3.9% in 2014 with signs of gradual recovery in other developed economies also helping.

Ms McGowan said it is developing countries which are now underperforming but that should be short-lived.

"Although emerging markets are currently lagging, they are expected to benefit from rising exports to the developed world and recover in 2014," she said.

She said fiscal policy tightening in the US and Europe had peaked and the effects should start to ease in the coming quarters creating room for economies to grow faster.

Low inflation will also support growth as the cost of living is only rising very slowly and leaves scope for central banks to keep interest rates extremely low for a very long time.

In the US, she said a recovering housing market and falling consumer debt should allow the economy there to grow by 1.6% in the current year and 3% next year.

"When it comes to the world's largest economy, it is worth noting that the negative shock from the financial crisis has, by and large, been absorbed by now.

"Consumer debt levels are down significantly and in the banking sector balance-sheet repairs have come far."

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