World economy seen weak in 2011

“The recovery of the world economy has started to lose momentum since the middle of 2010,and all indicators point at weaker global economic growth,” the report said.

Among other things,it said failure by countries to better coordinate their monetary policies was making global markets more volatile.

“No,we are not out of the woods yet,and major risks are still looming,” said Rob Vos,supervising author of the report World Economic Situation and Prospects 2011. “We expect the road to recovery to be long and bumpy.”

According to the U.N.,the lack of employment growth is the “weakest link” of the economic recovery. Besides the lack of job creation,especially in advanced economies,volatility in currency markets is generating more economic uncertainty.

“The cooperative spirit among major economies is waning,which has debilitated the effectiveness of responses to the crisis.

Uncoordinated monetary responses … have become a source of turbulence and uncertainty in financial markets. The recovery may suffer further setbacks if some of the downside risks materialize,in which case a double-dip recession is looming for Europe,Japan and the United States,” the U.N. said in its release.

Among the downside risks cited were renewed declines in house prices in the U.S. and tensions in foreign exchange markets that could prompt protectionist responses.

The Organization for Economic Cooperation and Development projects the economies of its 33 member countries will grow a combined 2.8 percent in 2010 after shrinking 3.4 percent in 2009. It predicts growth in the OECD in 2011 of 2.3 percent,lower than its June estimate of 2.8 percent.

The Paris-based watchdog said there are still risks to the global recovery,including high government debt loads in several European countries. The OECD also warned that widening trade imbalances could be a problem,especially if countries start to pursue more protectionist measures.

However,more robust growth in non-OECD countries will help shore up the recovery. China is predicted by the International Monetary Fund to grow on average by nearly 10 percent in 2010 and in 2011.

India (8.4 percent growth in 2011),Russia (4.3 percent) and Brazil (4.1 percent) will also make solid contributions.

Global trade continues to rebound,the OECD said,rising by 12.3 percent in 2010,before easing to 8.3 percent in 2011 and 8.1 percent in 2012. Trade growth will be especially robust in many Asian countries and Brazil.

Unemployment in the OECD area,however,would remain above 8 percent in 2010 and in 2011 before slipping to 7.5 percent in 2012.

The OECD repeated its call for European countries to enact labor market reforms to help contain the ranks for the long-term unemployed.

“Structural reforms are urgent in labor markets to increase employment,facilitate reallocation of jobs and workers and help ensure that the unemployed and vulnerable groups remain attached to the labor market,” said Pier Carlo Padoan,chief economist of the OECD.

The economies of East Asia,including China,Japan,South Korea and Singapore,will grow 8.8 percent in 2010,but growth will taper off in 2011 because of a weak global outlook and the phasing out of government stimulus programs,according to the Asian Development Bank.

The Manila-based bank said in a recent report that growth in developing East Asian countries will ease to 7.3 percent in 2011.

“With stimulus being withdrawn and the recovery intact,growth in 2011 should moderate as the post-recovery phase kicks in,” the report said.

The region’s growth faces several obstacles,the ADB said,including surging inflation in several countries.

In the United States,Federal Reserve officials have become more pessimistic in their economic outlook through 2011 and have lowered their forecast for growth.

The U.S. economy will grow only 2.4 percent to 2.5 percent in 2010,Fed officials said in an updated forecast in November. That’s down sharply from a previous projection of 3 percent to 3.5 percent.

In 2011 the economy will expand by 3 percent to 3.6 percent,the Fed said,also much lower than its June forecast.

The darker view helps explain why the Fed decided at its meeting last month to launch another round of stimulus. The central bank plans to buy $600 billion in Treasury bonds over the next eight months in an effort to lower interest rates and spur more spending.

The Fed meets on Dec. 14 and will examine what impact the program is having on the economy. It has left the door open to scale back bond purchases if the economy were to strengthen in the months ahead. Or the Fed could buy more bonds if the economy were to weaken.

The Fed’s forecasts of a slow economy with only gradual improvement in the job market are broadly similar to those by private economists. An Associated Press survey of 43 leading economists last month found that they expect the U.S. economy to expand just 2.7 percent in 2011,after growing just 2.6 percent in 2010.

The central bank expects prices will remain in check. Inflation is projected to rise 1.1 percent to 1.7 percent in 2011,little changed from the previous forecast of 1.1 percent to 1.6 percent.

The National Association for Business Economics,presenting the consensus of forecasts made by a panel of 51 U.S. economists,said persistently high unemployment and heavy debt burdens will hamper a more robust rebound. But the likelihood of either stagflation or relapse into recession was seen as low,according to the survey.

“Confidence in the expansion’s durability is intact,but panelists remain concerned about high levels of federal debt,a continuing high level of unemployment,increased business

regulation,and rising commodity prices,” said Richard Wobbekind,president of NABE.

The biggest concern among the top economic forecasters was the federal deficit. They predicted it will shrink by only about $100 billion to $1.2 trillion – a level the NABE called “extreme.”

Meanwhile,the number of jobs employers add to their payrolls is forecast to average less than 150,000 a month before picking up in the latter half of 2011. The unemployment rate is expected to remain elevated nearly 10 percent through early 2011. It’s expected to ease only slightly to 9.2 percent by the end of 2011.

That would mark the weakest post-recession job recovery on record,the group said.

By 2012,when President Barack Obama faces the electorate again,unemployment will be 7.7 percent to 8.2 percent,up from the previous forecast of 7.1 percent to 7.5 percent,the Federal Reserve said.

The U.S. economy is likely to get a boost from the recent agreement between Obama and congressional Republicans on taxes and unemployment benefits,business analysts say. The agreement would extend the 2001 and 2003 tax cuts for two years and continue unemployment benefits through the end of 2011. It also would cut payroll taxes and enable businesses to take more tax write-offs for investing in new equipment.

If it becomes law,the deal could boost economic growth in 2011 to 4 percent,according to Moody’s Analytics.

In other economic predictions for 2011:

– In the eurozone,the European Commission revised upward its economic growth forecasts for the 16 countries that use the euro despite concerns over the debt crisis,but said it expects deficits in weak countries like Portugal and Spain to be higher than expected.

In its most recent forecast in late November,the Commission said eurozone economic growth in 2010 would likely be 1.7 percent,nearly double its spring forecast of 0.9 percent.

Growth is expected to moderate in 2011 to 1.5 percent on the back of waning global growth and the impact of austerity measures being pursued across the eurozone. However,it is expected to pick up again in 2012 to 1.8 percent as the private sector starts to take up the slack from the public sector’s retrenchment.

The slowdown in 2011 will be most marked in Germany,Europe’s biggest economy. Though growth is set to slow from 2010’s stunning 3.7 percent,it will remain at an above-average 2.2 percent,according to the Commission.

France,Europe’s second largest economy,is expected grow by 1.6 percent in 2010 and 2011.

The countries with the biggest debt difficulties will continue to underperform as their governments rein in spending and raise taxes.

Portugal -widely considered to be the next most vulnerable eurozone economy following Greece and Ireland – is expected to fall back into recession in 2011,shrinking by 1 percent following 2010 growth of 1.3 percent.

Greece,which was effectively saved from bankruptcy in May by an emergency euro110 billion package,is expected to shrink again in 2011 but by less than it has in 2010. The commission expects the Greek economy to shrink by 3 percent in 2011,less than the 4.2 percent contraction in 2010.

Ireland,which was bailed out by its partners in Europe and the International Monetary Fund to the tune of euro67.5 billion,is expected to grow by a below-par 0.9 percent in 2011 following the 0.2 percent decline in 2010.

Olli Rehn,the commissioner in charge of economic and monetary affairs,said countries should be ready to enact further austerity measures even if growth comes in lower than expected. The Commission is forecasting budget deficits for Spain,Portugal and Ireland to be above the levels those countries have set out in their austerity programs.

Spain is a particular worry in the markets at the moment because its sheer size would make it extremely expensive for policymakers in Europe to muster the necessary bailout funds.

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– The Middle East and North Africa’s economic growth remains strong,the International Monetary Fund said,while stressing that the region’s reliance on oil revenues leaves it vulnerable should crude prices again collapse.

The agency in its semiannual World Economic Outlook estimated the region’s growth to be 4.1 percent in 2010 and 5.1 percent in 2011,compared with just 2 percent in 2009.

“The strength of the recent economic recovery in the MENA region is largely underpinned by the rebound in oil prices from their trough in 2009,” the IMF said.

Mideast oil exporters,such as OPEC kingpin Saudi Arabia,were largely able to weather the worst of the global meltdown by tapping oil revenues to spend on infrastructure development and social services. Other countries,such as Egypt and Lebanon,withstood the decline largely because their banking and financial sectors were not as exposed as those in the West to the crisis.

The rebound in oil prices played a key role in boosting the region’s economies. Oil prices jumped above $90 a barrel for the first time in more than two years last week (Dec. 7),a key milestone for analysts who believe tightening supplies will eventually drive prices above the $100 mark in 2011.

Because of increased oil prices,the IMF estimated in October the Gulf states and other oil exporting countries in the region will see their combined current-account surplus rise to $150 billion in 2011,up from just $70 billion in 2009,giving them more leeway to spend.

However,economic growth outside the energy sector remains sluggish.

The IMF called on oil exporting nations to reduce their dependance on crude by diversifying their economies and to tackle lingering problems uncovered by the financial crisis,such as the immense debt load carried by Dubai state-linked firms.

— In Latin America and the Caribbean,strong exports and high commodity prices are fueling faster-than-expected economic growth.

Next year growth is projected to remain relatively strong at around 4 percent,though less robust than the GDP growth of 5.6 percent estimated for 2010,the United Nations said in its 2011 economic report preview. Brazil,the engine of regional growth,continues with strong domestic demand to boost export growth of neighboring countries. The region also benefits from strengthened economic ties with emerging economies in Asia.

The region’s economy contracted 2 percent in 2009.