World economies

Canada THE Canadian economy entered the New Year on a stronger footing than envisaged by the TD Bank Group economists. The latest quarterly economic update reveals that the Canadian economy is now expected to grow by three per cent in 2011, up almost half a percentage point than the previous forecast. However for 2012, the projection remains roughly unchanged at 2.5 per cent. The upward revision in 2011 reflects an improved the US outlook, as well as an increased global appetite for Canadian commodities. Beyond the next six months, high personal indebtedness, flat housing markets, a lofty Canadian dollar, and waning fiscal stimulus are expected to act as headwinds on economic growth. Real GDP growth is expected to average an above trend rate of 3.5% in the first half of 2011. Given this backdrop, the Bank of Canada is expected to raise interest rates by 1 percentage point in the second half of this year and a further 1 percentage point next year. Despite the risk-filled environment, the most likely outcome is a continued healthy performance by the Canadian economy in 2011 and 2012. According to the reports in RBC economics, the Canadian economy's real GDP is expected to grow by 3.2 per cent in this year and will continue to follow the trend and will grow to 3.1 percent by the next year. Canada economy is taking a leap with the support of increase in U.S. exports. According to RBC, the U.S. export trends are expected to flourish. It is further predicting a firm growth in exports while helping Canadian economy to grow by 3.4 per cent by the end of 2011 and around 3.6 per cent in 2012. On the back of solid net exports in the final quarter of 2010, Canada's economy finished the year on a high note recording stronger than expected gains. The biggest support for the economy came from net exports, which added a full 4.5 percentage points to the quarterly growth rate. Continued consumer spending also played a vital role in driving overall GDP, marking the fastest increase in spending since late 2007. Labour market conditions will remain firm in 2011, and disposable income is expected to post a 4.1 per cent gain that will provide continued support to consumer spending. Meanwhile, RBC expects the Bank of Canada will resume raising its trendsetting interest rate in late May, from the current one per cent to two per cent by year-end. The gradual pace of rate increases combined with anchored inflation expectations will result in less upward pressure on long-term interest rates. Consumers' earlier confidence in taking on increasing amounts of debt was based on a combination of lower interest rates, a strengthening labour market and a 4.6 per cent rise in disposable income. An expected slowing in the housing market, rising interest rates and tightening mortgage lending standards all add up to a levelling out in consumer debt relative to income. Switzerland ACCORDING to the Swiss government, uncertainties about the global economy had increased and posed a risk to its otherwise more upbeat near-term outlook for the Swiss economy, which is now expected to grow by 2.1 per cent in 2011, up from 1.5 per cent predicted in December. However, a number of risks such as debt problems in many countries weighed on the global economic outlook and could stand in the way of a stable upturn. The uncertainties about the impact of Japan's nuclear crisis come on top of that. The Swiss economy has recovered fast from the 2009 recession, growing by 2.6 per cent last year despite the record-high Swiss franc thanks to strong global demand for Swiss products and robust consumer spending. The strong franc was still set to take its toll. Companies already reported a hit to margins and they were facing tougher competition as the franc made their products more costly for foreign customers. Solid consumer spending was likely to counter some of the expected slowdown in exports. A growth of 1.9 percent is predicted for 2012. However, higher oil prices were set to drive up inflation only briefly. There are hardly any signs that inflationary pressures are building up. The government economists predicted average inflation of one per cent for 2011 and 0.9 per cent for 2012. The real GDP grew in the fourth quarter of 2010 by 0.9 per cent over the third quarter. Positive growth came from investments, the trade balance for goods as well as from private consumption. Employment will continue to rise this year; at the same time, unemployment will decline. In addition, the labour market will experience a one-time – statistical – effect in early April. Because of the revision of the unemployment insurance law, benefits for 16,000 people will end at the beginning of April. This will further lower the unemployment rate. The unemployment rate in Switzerland dropped to 3.4 from 3.5 per cent in the previous month. The unadjusted figure slid to 3.6% from 3.8% and equaled November's rate. The unadjusted jobless rate dropped for the first time since September last year. The number of registered unemployed, on an unadjusted basis, was 143,325 in February, down 3.7 from 148,784 in January. From the same month last year, the figure dropped by 29,674 persons. Youth unemployment dropped by 1,170 persons monthly to 21,280. The annual rate will therefore drop to three per cent. The KOF, the Swiss institute of Business Research, expects the Swiss economy to grow by 2.8 per cent in 2011 and 2.3% in 2012 following the expansion of 2.6 per cent in 2010. It speculates that the Swiss National Bank (SNB) may look to raise rates by mid 2011 as the surge in the Swiss Franc has had less impact than expected. Inflation is expected to average 0.7% this year and rise to 1.2% in 2012. Given the positive economic outlook, the SNB might raise borrowing costs from 0.25 per cent in the coming June assessment. The appreciation of the Swiss franc also seems to have hampered the upturn less than expected. Growth in exports slowed distinctly towards the end of last year but remained slightly positive. Due to the persisting strength of the franc, exports this year will rise overall by 3.5%. The franc appreciation will have a dampening impact on the price of foreign goods and services. These will be declining, which will lead to higher demand, hence growing imports. The latter should rise overall by 6.1%. Private consumption in 2011 will climb by 1.6 per cent. Investments in construction in 2011 will grow by one per cent in 2011. This year, investments in machinery and equipment will climb by 7.1 due to high utilisation of production capacities and the rationalisation measures carried out due to the strong franc. New Zealand ACCORDING to the International Monetary Fund, New Zealand's economy will grow 1 percent this year before earthquake rebuilding boosts the expansion to 4 percent in 2012. The damage from the September and February temblors is estimated at $11 billion which is 7.5 per cent of GDP. The quakes destroyed homes and businesses in Christchurch, the nation's second-biggest city, and surrounding South Island regions that make up about 15 per cent of the national economy. Monetary policy will need to be tightened when it becomes clear that the recovery is under way. Growth in the second half of 2010 was weaker than previously expected and the recovery from the September earthquake was slower than expected, reflecting the extent of the damage, ongoing aftershocks and the complexity of the repairs and rebuilding. The economy shrank in the third quarter for the first time since the first quarter of 2009, which was the end of five straight quarterly contractions as the global credit crisis contributed to the nation's worst recession in three decades. But the central bank hopes, New Zealand's economic growth will surge once rebuilding from the devastating earthquake begins. The RBNZ estimates that GDP growth will be around 1.5 per cent points lower in the 2011 calendar year solely as a result of the February earthquake. The Reserve Bank has cut its growth forecast for the year ending March 31 to 0.9 from 1.7 per cent, and its forecast for the year ending March 2012 to 2.7 per cent from 3.4 per cent. The New Zealand Institute of Economic Research (NZIER) affirms that the recovery has been interrupted and has drastically reduced its 2011 estimate of GDP growth from 2.3 to only 0.3 per cent. It is estimated that each day of lost production is equivalent to 0.1 per cent of national quarterly GDP. As a result, GDP could be reduced by around 0.5 per cent each quarter until the reconstruction is completed. In the first quarter of 2011, GDP growth could easily be negative. The RBNZ needs to guard against medium-term inflation expectations becoming anchored at too high a level. The government will curb spending because its budget deficit will be wider than expected. The 2011 fiscal deficit is expected to reach 9 percent of GDP. The earthquakes increase public expenditure in the current year by NZ$6.5 billion. According to the IMF, the government should target returning to a budget surplus by 2015 to protect itself against future shocks and reduce debt. There is scope to reduce payments to middle-income families, to rationalise capital spending and improve the efficiency of public services.