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Businesses will be glad to know that according to recent forecasts from PIERS/JOC economist, Mario Moreno, economic recovery is finally on solid footing. Drawing on PIERS statistical data as reported in the “First Quarter 2011 Survey of Professional Forecasters” released early last month, Moreno says expectations for 2011 and 2012 have been revised and are up significantly based on 2010’s numbers.
The 43 respondents in the survey indicate an improved outlook for 2011 with the panel now expecting to see 3.6 percent growth in the first three months of this year and 3.2 percent for the entire year.
But the accompanying downside risks are significant—the threat of soaring oil prices brought about by political turmoil in the Middle East is not to be taken slightly. With oil trading above $100, consumers around the globe are facing reduced disposable incomes and are likely to cut back purchases of discretionary items at least until wages adjust commensurately. According to Moreno, reduced consumption spending on goods around the globe will unfortunately delay the current recovery.
On top of unsustainable oil prices, global inflation is being driven by rapidly rising commodity prices. World export prices for corn, soy, wheat and rice are up a collective 70 percent over the past 12 months and the UN Food and Agricultural Organization is predicting sharply increased prices of staples such as bread, pasta, breakfast cereal, dairy and meat.
Moreno says only part of global commodity inflation can be traced to rising oil prices. Clearly, agricultural producers and distributors must spend more on inputs but most of the increase is more an artifact of too much demand relative to supply. Add poor growing weather to the mix and prices have nowhere to go but up. Increased investment and output will solve the imbalance but this will take time.
Overall, world GDP is still expected to churn out 3.5 percent more output in 2011 compared to 2010 and add a further 3.7 percent in 2012. A better than expected performance in the US and an easing of political tensions in the Middle East could support an upwards revision of at least 1.5 percentage points in summer. Meanwhile, global economic growth will be affected, the degree to which, is still unknown.