Global economy

The wall of worry over the state of the global economy is still very much with us. But the pessimism is overdone. The IMF estimates that the global economy will grow at an average of 4.5% per annum between 2010 and 2012, very much in line with its trend. There was a slight slowdown in activity around September/October last year but the monthly surveys (PMIs, OECD lead indicator) show a vigorous pick-up since then. Interestingly, this is concentrated more on manufacturing than services. What seems to be happening is the necessary rebalancing of the global economy as the over-indebted, over-consumed economies divert resources away from consumption and property to manufacturing and trade. This will take time and will not be immediately obvious in the statistics. But it has to happen or else the world will disolve into protectionism. The only real problem lies with those economies whose exchange rates are tied to that of Germany, the economy that is showing everyone else how it should be done. These economies will struggle and will be unable to pay their debts.