Unpicking a global economic patchwork

The multi-speed or patchwork nature of the global economy is set to continue into 2013.

In a hint of things to come, the still wide divergence between the countries in the faster lanes and those trundling along in the slow lanes has been further highlighted in the recent run of data, including some of the purchasing manager index results.

In China, the slowdown in GDP growth that has been evident over the last couple of years appears to have not only stopped, but just might be reversing. Recent news on industrial production, retail spending and fixed investment have all been stronger and policy makers in China are suggesting a turning point in the economy is imminent.

The HSBC manufacturing PMI for China registered a decent rise in November, reaching 50.4 points, to register the first over-50 reading in 13 months. If this rise in the PMI is sustained in the months ahead and is replicated in the services side of the economy, it would fit with a scenario of GDP growth of around, or even a little above, 8 per cent in 2013. This would be a pick-up from the 7.5 per cent GDP growth rate in 2012 and would be at a pace consistent with the recent pronouncements from the People's Bank of China.

In Europe, by contrast, the Markit Economics composite PMI (a combination of both the manufacturing and services sectors) rose just 0.1 point in November to 45.8 points. Unfortunately, this is a level consistent with ongoing economic stagnation. The softness in the index was evident in both Germany and France and the results fit with the recent run of poor economic news throughout Europe. The current dithering in the negotiations surrounding the structure of the bailout of Greek debt only adds to the reality of problematic economic times ahead.

In the US, the news was in the middle of the pack. The manufacturing PMI rose to a five-month high of 52.4 points and is at a level that suggests GDP growth will accelerate from current levels of around 2 per cent to levels nearer 2.5 or even 3 per cent in the early part of 2013. So weak is the US that it has been over six years since the US has recorded through-the-year GDP over 3 per cent, a rate that is still widely seen at the potential of long-run trend rate of growth.

While there are the ongoing and high profile risks for the US, not least with the way Congress and President Obama will deal with the fiscal cliff, other recent news on housing starts, house prices, job creation and consumer sentiment all point to a lift in US GDP growth in 2013. Growth of 3 per cent would present a welcome development if it can in fact be achieved.

This snap shot of the three economic powerhouses shows the multi-speed nature of the world economy. China remains the strength, the eurozone very weak and the US, while soft, is in some form of economic recovery.

But there other important parts of the global economy and these also show a wide divergence in economic performance.

The recent forecasts from the International Monetary Fund are for GDP in India to grow by more than 7 per cent in 2013, meaning that China and India alone will contribute between one-third and a half of all of the global growth recorded.

Brazil, the seventh largest economy in the world, is forecast to grow by a little over 4 per cent in 2013, with all of South America forecast to expand by around 4.3 per cent. This is good news in this emerging and increasingly important part of the world economy.

In Russia, ranked number 11 in terms of world GDP, the rate of growth is forecast to ease marginally with the IMF forecasting sub 4 per cent GDP growth in 2013, which would be marginally down on the 4 per cent growth likely to have been registered in 2012.

The Middle East and North Africa are also forecast to grow, with a steady expansion around 3.7 per cent in 2013, while sub-Saharan Africa is expected to clock up another year of GDP growth over 5 per cent. The mining boom and strong investment inflows, especially from China, account for this ongoing strong performance in Africa.

The 'old world' of Japan, Canada and the UK will drag the chain with GDP growth forecasts for 2013 hovering around 2 per cent. Given the background of the GFC inspired recession, this sort of recovery is unimpressive and only goes to highlight how troubling economic times are in the G7 countries.

Whatever the results for the global economy in 2013, the gap between the fast and slow countries is certain to remain wide. For Australia, the good news is that the strongest parts of the world are those countries which take a large and growing share of the export base.