Belfast Telegraph

Global growth to near 4% as Europe falters

By Margaret Canning

The global economy will grow by nearly 4% this year though Europe will continue to be beset by problems, a bank predicted today.

Northern Bank's global scenarios report forecast 2.5% growth for the US, 2.3% for Japan and 8.6% for emerging economic powerhouse, China.

But the bank's 3.9% prediction for global growth is down 0.1% from its January report.

The latest report also predicts sluggish growth of just 0.1% for Europe with the debt crisis - especially the risk of things getting worse in Italy and Spain - still a thorn in its side.

Northern Bank chief economist Angela McGowan said: "The global economy presented a relatively robust performance in the first quarter of this year but there continues to be a mixed picture.

"Last year's headwinds included a food and oil price shock, the euro crisis, US debt woes and the Japanese earthquake.

"Some of these headwinds have faded, which should help the global economy to move forward at a faster pace.

"Europe is still facing headwinds, including deleveraging, tighter credit conditions and fiscal contraction, but a number of tailwinds - such as the decline in world food prices and the rebuilding in Japan after last year's earthquake - should help to support growth."

Germany remains the best performing nation in the eurozone thanks to its healthy economy and unemployment falling to a 20-year low.

Overall, Northern Bank predicted Europe would pick up in the second quarter but revert to low growth in the second six months of the year. Because of slowness at home, it will be reliant on external demand.

Ms McGowan said: "Focus is currently on Spain as a mix of sharply declining house prices, missed deficit targets and a very high and rising unemployment rate are making global investors turn their back on Spanish bonds.

"Spain is essentially undergoing a confidence crisis which could become self-fulfiling, forcing the country to turn to the European Union and the International Monetary Fund for a rescue package.

"The probability of a Spanish bailout is currently sitting at 30%."

But the US and China will remain insulated from the eurozone crisis.

The report welcomed the fall in international food price inflation after bad weather prompted price falls in 2010 and 2011.

The bank said: "With the fall in food prices this year, interest rates can be eased in emerging markets which should further support growth."