Slow But Steady Growth on Horizon for Global Business

According to the World Bank, manufacturing and services purchasing manager indexes (PMIs), which had temporarily weakened in March of this year, will again begin reaccelerating in the second half of 2011. The deceleration was attributed to one-time factors, including the disaster in Japan and weaker than expected growth in the United States. The expected growth in PMI is projected to be aided by reconstruction efforts in Japan and a lift from lower oil prices, as well as growing industrial production throughout the world.

Both the global manufacturing and service PMIs began 2011 on the upswing, then dropped suddenly in March and April, before picking up the pace again in May. Among developing countries, the pickup in production has been broadly-based, but also quite differentiated, with output expanding 19 percent in East Asia & the Pacific during the first quarter of 2011 – this rate subsequently slipped to 15 percent in April.

Industrial production in the European area is expected to perform well in the second half of the year, supported by strengthening consumer spending, strong monetary policy and robust business confidence. However, this growth is expected to ease slightly, as seen in current PMI readings, reflecting a slowdown in global trade expansion, austerity measures and debt concerns, as well as the effects of a stronger euro. Overall, industrial output is expected to expand at a rate close to five percent in the second half of 2011, before easing its growth pace at the end of the year.

The latest PMI readings also suggest robust growth in manufacturing output in India and South Africa, with more moderate growth in Russia, Turkey, China, and Brazil. In the Asian sector, food and fuel inflation will continue to cut into incomes and is expected to create an easing in consumer demand growth and a slowing of the current industrial expansion.

Based on the limited recent data available for industrial production in the Middle-East and North Africa, the political turmoil in the region has had a notable impact on activity. In Tunisia production dropped 18.8 percent between December 2012 and February 2011, but has picked up eight percent in March; still, output stands nine percent lower in the first quarter of 2011 versus year earlier levels. As of February 2011, industrial activity in Egypt was down 20 percent from December 2010 levels and 14.4 percent from a year earlier.

Overall, the global recovery has broadened to encompass more firms, more countries and more components of aggregate demand. Improving labor market conditions in high-income countries, and strongly expanding domestic demand in developing countries, augurs well for a continued maturation of the recovery that is now almost two years old.

In summary, global growth is projected to ease from 3.8 percent in 2010 to 3.2 percent in 2011, before picking up to 3.6 percent in each of 2012 and 2013. The slowdown for high-income countries (from 2.7 percent in 2010 to 2.2 percent in 2011) mainly reflects very weak growth in Japan due to the after-effects of the earthquake and tsunami. As strong reconstruction efforts begin, the slowdown is expected to cease and growth is on the horizon.