Economic situation and outlook

Economic situation and outlook 4/2010

It appears that the worst of the global economic crisis is behind us. The global economy has been growing by almost five per cent this year, whereas last year it contracted by slightly less than one per cent. According to the International Monetary Fund's latest forecast, issued in October, half of this year's worldwide economic growth is achieved in China, India and other emerging Asian countries. Next year's outlook is also very positive for those countries. However, economic overheating poses a new problem, namely the need to curb growth to counter the fear of rising prices. The economic crisis has left deep scars on many developed countries. Western Europe, the United States and Japan's combined share of this year's global economic growth has been no more than a fifth. The lookout for 2011 remains cautious and overshadowed by insecurity. The developed countries' recovery from the global financial crisis was facilitated by massive fiscal measures. As a consequence of these and a decrease in tax income, many European countries, the United States and Japan are highly indebted. Several European countries have already begun to cut public expenses and raise taxes. Others will soon follow, Finland among them. As a result, private consumption and investment growth will slow down in the years to come, while the unemployment rate is likely to remain high. In recent months, fear has arisen of a double dip in the US economy. Far from picking up, the real estate market further declined this year, while growth in industrial production has ground to a halt. A similar situation can be found in Japan, where industrial production has already been shrinking for several months. If this continues, insecurity will spread throughout the world. The global economic imbalance will continue to spur new crises in the years to come. It manifests itself as a surplus in many emerging markets, and as a deficit in many developed ones. Global structural change is shifting jobs, know-how and capital towards emerging countries at an increasing pace. This unidirectional capital flow is accelerated by the cheap price of money in Western countries and better prospects for profit in the developing regions. Adjusted for purchasing power parity, Asia, Eastern Europe and Latin America's combined share of the world's total GNP is currently at around 50 per cent and continues to grow rapidly.download