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World economy is at a crossroads according to new Deloitte report

Deloitte: Global economy at a turning point


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November 13, 2012 – Every major region of the world seems to be at a potential turning point, according to Deloitte’s newly-released Global Economic Outlook Q4 2012. The report focuses on the world economy, indicating that it is now at “a crossroads,” with leaders around the globe faced with challenging decisions in new near.

For the Eurozone, contrary to more apocalyptic predictions made during the summer months, early autumn has been a comparatively quiet time. However, this situation is not a reliable predictor of future events. Part of the difficulty in solving the euro crisis, according to the report, is due to the fact that there is no clear vision about where the Eurozone is heading in terms of governance structures and architecture.

In Deloitte’s Global Economic Outlook for Q4, Dr. Alexander Bӧrsch, Head of Economics & Research at Deloitte Germany, suggests that, other than collapse, the Eurozone has four options to move forward. These range from modest efforts to enforce existing constraints through an improved version of the Maastricht Treaty, to full scale integration in the form of a political union. However, he says, the most consistent options of the four are ambitious.

Dr. Bӧrsch comments, “The Maastricht 2.0 would need to address and overcome obvious weaknesses in the old institutional architecture, while the formation of a political union would imply a transfer of authority unseen in the history of the nation-state with many foreseeable and unforeseeable challenges. The main issue, however, is what the preferred option for the future of the Eurozone actually is.”

Other key findings from the Deloitte Global Economic Outlook Report include:

United States: Uncharted waters

The US economy has benefitted from a combination of luck and resilience, and ongoing anemic growth in the United States is historically unprecedented. A wide range of factors, including fiscal policy, headwinds from Europe, and risky monetary policy may loom over the US economic outlook into 2013.

China: When exports decline

The current policy regime may continue to boost economic output in the coming months, paving the way for a soft landing. Uncertainty pertaining to China’s economic outlook stems from the policy choices that will be made by the country’s incoming leadership.

United Kingdom: Turning the corner, slowly

The United Kingdom’s double dip recession is likely coming to an end, but myriad internal and external problems remain, which could result in a shaky and tepid recovery.

Japan: An elusive recovery

External headwinds, a highly valued currency, continued deflation, stagnant consumer spending, and declining real wages are hindering Japan’s economic recovery. Furthermore, despite falling prices, the government has decided against expanding its policy of quantitative easing, and a political dispute with China is having a negative impact on Japan’s industrial economy.

India: Cautious optimism

Uncomfortably high inflation, external headwinds, and an uncertain policy environment are adding downside risk to India’s economy, which is operating below its potential. The government has proposed several reforms that could improve long-term growth, but political opposition is adding a dose of uncertainty to India’s economic outlook.

Russia: Slowing down

Despite a global economic slowdown, Russia’s central bank decided to tighten monetary policy in an attempt to curtail inflation. This may lead to a slowdown in growth.

Brazil: Chasing growth

Brazil’s central bank decided to focus on growth rather than inflation, which will likely result in stronger growth next year. The US monetary policy could have a significant impact on Brazil’s exchange rate.

Korea: S(e)oul searching

South Korea has achieved an enviable level of affluence, but weakening export demand and excessive consumer debt may put the brakes on economic growth. In the longer term, South Korea may need to consider a move away from manufacturing in favor of developing a service-based economy.

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