Recovery on track as growth hits 4.4%
The Japanese earthquake, high oil prices and policy tightening in Asia have knocked the world's economy but renewed growth in the latter half of the year should see the recovery get back on track.
Northern Bank's latest Global Scenarios report showed that economic expansion, as measured by purchasing managers' indexes, has suffered a setback while private consumption softened in the first quarter of 2010.
But as the headwinds fade, global growth is expected to reach 4.4% for this year as a whole and 4.5% for 2012.
"Without doubt the oil price shock, the Japanese earthquake and tightening of policy in Asia have caused a blip in global growth levels," Northern Bank Chief Economist Angela McGowan said.
"The oil price has been the main culprit in terms of creating the downward pressure on growth but it has already fallen back and is expected to stay lower for the rest of the year. When we look to the second half of this year we expect to see a stronger recovery.
"Brent crude oil was trading around $113 a barrel on June 13 having fallen just shy of $120 a barrel earlier in the month.
The report also points to a recovery for production in Japan during June which "should transform the impact on other countries into a boost during the summer months."
Northern Bank's latest report forecasts that year-on-year growth in 2011 will be 2.6% in the US, 2.2% in Europe, 9.4% in China and 6.0% in Asia (excluding China and Japan).
But it's not all plain sailing.
"A key risk stems from the euro debt crisis, which is still very unstable and contagion to Spain and Italy can still not be ruled out and indeed should this happen then the global recovery would encounter a significant new negative shock," said Ms McGowan.
"Political risks are also high in the US and Japan. The US is approaching its debt limit and in Japan the government could fail to get parliamentary support for fiscal tightening.
"Unfortunately the euro crisis has not been resolved and political failure to address funding problems for peripheral countries is increasing uncertainty.
"If the European crisis escalates further, financial markets will once again be pushed into turmoil and global growth will undoubtedly be affected."