18 January, 2010
The risk of sluggish and weak growth this year is becoming increasingly apparent despite the healthy pace of expansion that is occurring in the global economy entering 2010. Consequently, more than 60 countries around the world are expected to record lower output in real terms in 2010 than they did prior to the crisis.
Dun & Bradstreet's 2010 Economic & Risk Outlook Report, reveals that major emerging markets such as China and India continue to experience rapid economic expansion and both the US and Europe have pulled out of recession. However, the winding down of stimulus programs around the globe, high unemployment and a continuation of subdued bank lending are likely to result in a slowdown during the course of 2010. Those countries most closely integrated with the US economy in particular, are expected to continue to suffer from the effects of muted US demand.
Despite predicting a global slowdown, the D&B report forecasts positive economic growth at a global level and a promising outlook for New Zealand. World economic growth is expected to hit 2.0 percent this year and 2.3 percent in 2011. This comes on the back of estimates which indicate that the global economy contracted by 2.2 percent in 2009. Meanwhile, with the recession having officially ended in New Zealand in the June quarter, subsequent data releases are supportive of an economic recovery. In addition, New Zealand's key trading partners are expected to record positive economic growth this year however, Japan is expected to face a contraction in 2011.
According to John Scott, General Manager, Dun & Bradstreet New Zealand, 2010 looks relatively promising for many economies around the world however, markets are increasingly appreciating the risk that a renewed economic slowdown could occur this year.
"2010 looks significantly more positive than last year however, as we predicted during 2009, this year will challenging," said Mr Scott.
"Government stimulus packages underpinned much of the growth recorded last year and with these packages scheduled to be unwound in 2010, the stimulus will need to be supplanted by private demand if economies are to continue on their current growth trajectory.
"Government's and firms' need to be aware of the risks which could significantly disrupt the return to solid economic growth and ensure they are prepared to manage them effectively.
"To avoid significant disruptions and maximise medium term growth prospects will require a solid focus on pro-business policies."
This year will continue to reveal the differences in exposure of individual economies to the credit crisis, with the outlook for New Zealand's key trading partners varying significantly.
Positively for New Zealand, whose economic fortunes are closely linked with Australia, the neighbouring nation enters 2010 in a much healthier state than most developed markets and is well placed to benefit from the global recovery. China is also expected to perform solidly, with the risk outlook for the developing nation generally encouraging. China looks to be focused on boosting domestic consumption and strategic industries in 2010. D&B forecasts that China will sustain economic growth of more than 7.0 percent this year.
However, the recovery in the United States will be slow. High unemployment, diminished savings, restricted bank lending, the expiry of fiscal stimulus measures and the completion of inventory-rebuilding all raise the possibility of another slowdown in growth over the course of 2010. Real GDP growth is forecast to reach 1.5 percent and 1.3 percent in 2010 and 2011 respectively however, these figures are well below the average growth rate of 2.9 percent in the 1989-2008 period.
The United Kingdom and Japan are also facing a relatively sombre outlook. Following the longest period of unbroken contraction since quarterly records began in 1955, the UK's subdued confidence will limit GDP growth to below 1.0 percent in 2010. Meanwhile, Japan has suffered a downgrade to its country rating (to DB2c), putting it in the bottom half of the 'low risk' range. In addition, Japan is classified as being on a deteriorating trend - this is in contrast to the smaller, middle-income exporting countries in the region.
New Zealand officially came out of recession in the June quarter of 2009 and forecasts indicate that the nation will fare relatively well in 2010. However recent positive data sets are causing speculation about when the Reserve Bank will begin to raise its policy rate. D&B does not expect the central bank to raise rates until mid-2010.
New Zealand and Australia are both forecast to record GDP growth of 1.8 percent this year however, Australia's growth rate is expected to outpace New Zealand in 2011 with GDP growth of 2.6 and 2.2 percent respectively. This follows estimates which indicate that the New Zealand economy contracted by 1.0 percent in 2009.
"The latest economic data and forecasts indicate that we can expect a stronger performance from New Zealand firms in 2010 than we saw in 2009," said Mr Scott.
"Generally high business confidence levels are in line with the largely positive data flow that has emerged from New Zealand since the June quarter 2009. These factors bode well for the year ahead.
"However, business managers are expecting higher average annual inflation in 2010 and accordingly, the Reserve Bank is expected to begin raising the Official Cash Rate during the year. These costs are likely to flow on to households and firms and as such, there is still room for caution in this relatively optimistic scenario."
Some developed nations face the risk of speculative asset-price bubbles emerging as a result of the combination of extremely low interest rates and rising investor risk-aversion. Others are experiencing macroeconomic problems as capital inflows threaten to overvalue their exchange rates. Investor risk-aversion will continue to influence major investment decisions in 2010, underlining the importance of pro-business policies for maximising medium term growth prospects.
According to the 2010 Economic & Risk Report, these factors are unlikely to derail economic growth in the near term however, mounting inflationary pressures from rising hydrocarbons and food prices are also an area of potential risk. This issue may force governments to reverse monetary policy easing before the economic circumstances are ripe. Interest rate moves will have important consequences, as governments are unlikely to be able to afford additional fiscal stimulus programs.
For further information and comment please contact:
Danielle Woods
D&B Australia & New Zealand
Ph: +61 2 8270 2926
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 150 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than 1.5 million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
