Growth Weakens Worldwide

Substantial data revisions have shown that the U.S. recession in 2008 to 2009 was far more pronounced than originally estimated, and that the recovery has been slower than previously assumed. Leading indicators signal that growth will stay weak in the second half of 2011. With key interest rates already at a low level, monetary policymakers have resorted to new nonstandard measures to support the economy. Japan’s economy has largely recovered from the severe consequences of the earthquake in March 2011. The reconstruction activities have given Japan’s economy a boost, and global production chains have been largely reestablished. Japan’s economic growth is likely to enter positive territory again already in the second half of 2011. For 2011 as a whole, the IMF sees Japanese GDP declining by 0.5%. Additionally, the strong appreciation of the Japanese yen may affect export growth. While China’s economic growth has lost some steam, it will still come to some 9% in 2012. Euro area growth slackened noticeably in the course of the first half of 2011. In the second quarter, real GDP edged up by only 0.2% on the previous quarter. Consumer spending diminished, and exports became the mainstay of growth. Euro area economic growth is anticipated to stay slow in the third quarter. Conditions in the labor market have been improving only hesitantly. The continued tension in the government bond market is creating uncertainty. Whereas Ireland’s efforts to consolidate its government finances have resulted in a decline in yield spreads, the yields on Greek sovereign bonds rose to new heights in September 2011 following reports that the results of Greece’s consolidation efforts have been insufficient. In recent months uncertainties about the economic prospects in EU Member States in Central, Eastern and Southeastern Europe (CESEE) heightened significantly. The slowdown in growth in the second quarter of 2011 and the publication of adverse economic data for both Europe as a whole and the world economy lead to activity forecasts for the region having been revised downwards since early summer 2011. Price pressures, which were comparatively high in the first six months of 2011, passed their peak in the summer. In various countries the external position has gradually deteriorated of late. Thus the crisis-induced cyclical component of current account adjustment is slowly losing significance. The Austrian economy continued to expand at a fairly robust pace in the first half of 2011 and, even at 0.7% growth in the second quarter, significantly outperformed Germany and the euro area as a whole. Meanwhile, however, there have been increasing signs of a sudden and substantive loss of economic momentum from mid-2011 onward. The weaker external environment and a high level of uncertainty in the corporate sector against the backdrop of the sovereign debt crisis have caused export and investment, previously the key growth drivers, to cool off visibly. For 2011 as a whole, GDP growth is still expected to average close to 3% given the strong start into the year. The outlook for growth in 2012, however, is rather weak, with the latest GDP growth projections, released in September 2011, lying within a range of 0.8% (Austrian Institute of Economic Research – WIFO) to 1.3% (Institute of Advanced Studies – IHS).