Global Banks Make Predictions for 2011

A recent article in the Vancouver Sun showcased the opinions of many of the largest financial institutions in the world in regard to their predictions for the economy next year. Here is a look at what some of them had to say.

UBS

UBS maintains that the world economy is on track toward a recovery, citing the fact that it grew an estimated 4.1 percent in 2010. The bank predicts that global growth will slow down a bit in 2011 to 3.7% and then pick up slightly to 3.8% in 2012, with Japan having the slowest growth rate in 2011. The bank also predicts a slow down in emerging economies.

“The lingering constraints of the credit crisis and balance sheet repair, combined with a less-pronounced inventory contribution, suggest that the world economy is unlikely to reduce much of the spare capacity built up during the recession,” said the bank in the article.

Bank of America-Merrill Lynch

Bank of America-Merrill Lynch states that the gap between advanced and emerging economies will be a significant factor next year.

“While economic fundamentals are positive in most emerging markets, banking and real estate crises have created deep and persistent output gaps in the Big Three – the U.S., Japan and Europe. We expect trend-like growth in most economies in the year ahead. Such growth is essential to avoiding overheating in the emerging markets, but it means a very slow healing process in the Big Three,” the bank said in the article.

Due to the gap, the bank predicts an ongoing policy split. Furthermore, the bank predicts that the unbalanced global economy will create several risks including trade and currency tensions, premature policy exit and commodity and asset market bubbles.

Deutsche Bank

Deutsche Bank predicts that the global economy will bounce back and predicts a growth of nearly 4% in 2011, with slightly faster growth in 2010.

“This overall pattern combines two very different pictures: one for economies that have been hit hard by the effects of deflating real estate bubbles and sovereign debt crises and a second for those that suffered more modestly and indirectly from spillovers as global activity declined.”

The bank also predicted that global inflation will pick up modestly, but will continue to be at or below average in Europe, the United States and Japan while remaining elevated in emerging markets. Overall, the bank predicts a 6% global inflation rate in these markets.

Morgan Stanley

Morgan Stanley believes external imbalances are shrinking as surplus countries engage in the transition from being export-led to consumption-led while deficit countries tend to move in the other direction.

“Reflation: During the rebalancing process, the G3 central banks will likely keep policy very expansionary, which should support the ongoing reflation of the global economy and financial markets. Many emerging market central banks will likely raise rates, but won’t be overly aggressive.”

The bank also foresees reconciliation as governments address the needs of bondholders versus stakeholders.

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