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Global economic growth rate of 3.5% at risk from world events

Ottawa, ON -- The world economy is forecast to expand by 3.5% this year and similar growth is anticipated in 2012 as well. The Asia-Pacific and Latin American regions are, once again, expected to lead the world in economic growth in 2011.


Ottawa, ON — The world economy is forecast to expand by 3.5% this year and similar growth is anticipated in 2012 as well. The Asia-Pacific and Latin American regions are, once again, expected to lead the world in economic growth in 2011.

However, political tensions in the Middle East and North Africa, the effects of the Japanese earthquake and the ongoing European debt crisis will increase risks to the global economy, according to The Conference Board of Canada’s World Outlook – Spring 2011.

“As a result of the Japanese earthquake and unrest in the Middle East and North Africa, oil prices have increased and are expected to remain volatile for the foreseeable future,” said Kip Beckman, Principal Economist. “In addition to high oil prices, unsustainable debt loads in a number of European countries and the potential for renewed inflation could weaken the global outlook.”

Another factor that has created uncertainty in global oil markets has been the devastating earthquake and tsunami in Japan. The destruction of nuclear reactors at the Fukushima power station represents a loss of 8% of Japan’s electricity generation. This loss will eventually have to be made up by thermal power plants, which will increase demand for oil and place added upward pressure on prices.

The damage to housing and infrastructure and the resulting loss of production and exports will lead to negative GDP growth in Japan in the second quarter, but reconstruction efforts should result in positive growth for the final two quarters of 2011.

The economy of the Asia-Pacific region will continue to perform well, with growth of about 5% anticipated. However, many of Asia’s key industries depend on specialized Japanese components to keep their plants operating. Countries such as South Korea could be hurt by delays in obtaining parts for industrial production.

The United States may also be hurt by the disruption in Japanese production, as companies such as Boeing and General Motors depend on Japanese components. However, the biggest threat to the U.S. economy remains elevated oil prices. If prices remain well above $100 per barrel for the remainder of this year, the Conference Board’s forecast of real GDP growth of 3.5% in 20011 could be at risk.

The European Union will record meagre growth of 1.7% in both 2011 and 2012, says the Board. Portugal’s request for a bailout from the EU and IMF indicates that the European debt crisis is far from over. In addition, high unemployment rates and government cutbacks now being implemented in some countries will create uncertainty in the EU over the near term.

With real GDP growth expected to come in at a solid 4.3% in 2011, Latin America’s primary concern appears to be inflation. As inflation climbs above 5% in some countries, central banks in the region have raised short-term interest rates.