UK

THE UK economy was also greatly affected by the two World Wars and the breaking up of the British Empire. Although the UK economy has since recovered, it is unlikely to reclaim its former position as the top economic power in the world. The UK was the 6th largest economy in the world in 2010 according to nominal GDP (current prices) and the 8th largest in the world according to GDP (PPP). In 2010, UK’s GDP (PPP) was $2.172 trillion or 2.982 per cent of the world’s GDP. Today, the UK economy faces another struggle to recover from the 2008 financial crisis. Presently, the recovery effort has been sluggish. Although global economic prospects appear to be improving, economic forecasts for the UK have been fairly negative.

With 2011 drawing to a close - and a year of feeble recovery for the economy - experts warn that the UK may see a return to recession in early 2012. The National Institute of Economic and Social Research estimates a 70 per cent risk of a double-dip recession while the OECD predicts recession for the first-half of the year. The independent Office of Budget Responsibility downgraded its projection for 2012 growth from 2.5 - a prediction from March - to 0.7 per cent. Britain’s economy will have lost five years of growth by 2013, according to the leading economic think-tank. A report by the Organisation for Economic Co-operation and Development also ranked the UK as the slowest growing economy in the G7, with the exception of Japan.

The UK economic growth slowed in the three months up to November, with GDP growing by 0.3 down from 0.4 per cent in the three months ending in October. A slump in industrial output for October has raised concerns the economy will contract in the fourth quarter. October’s industrial production figures suggest that the risk that the overall economy re-enters recession in the fourth quarter remains high. Industrial output in October fell 0.7 from September and likewise 0.7 per cent over the three months to October compared with the previous three months. The decline was driven by falls in the metals, repair and pharmaceutical industries. The monthly decline in manufacturing output is an accurate reflection of the sector’s ongoing struggles. The UK economic outlook for 2012 does not look bright.

Economists at the Bank of England are of the opinion that UK economy could “easily” register negative growth in the fourth quarter of 2011and the economic growth in 2012 will likely be “0.5 or above. But the economists at Morgan Stanley UK are a bit more optimistic. They expect 2012 economic growth to be 1.2 per cent. According to the NIESR, the UK economy would not recover the massive seven per cent shrinkage from its early 2008 peak it experienced in 15 months of recession until late in 2013. Like many developed Western countries, the biggest challenge to the UK’s economic outlook is weak consumer demand.

Last month the Office of National Statistics reported that the UK Consumer Prices Index (CPI) inflation fell slightly to five per cent during October, down from a rate of 5.2 the month before. Falls in the price of food, air transport and fuel helped to push the inflation rate lower. The rate of price increases was two per cent in November, down from 2.1 in October. Food price inflation was still relatively high, but down to 4% from 4.2 the previous month. Non-food inflation remained at 0.8.. Despite the drop, the rate still remains well above the Bank of England’s target of two per cent Retail Prices Index (RPI) inflation - which includes mortgage interest payments - also fell to 5.4 from 5.6 per cent..

The Bank of England predicts a sharp fall in inflation from the start of 2012, but has warned the UK economy could be stagnant until the middle of next year. UK was on track for inflation to come down to its two per cent target during the second half of 2012. Slowing in price rises would translate into real take home pay in the UK starting to improve from the start of 2012. Beyond that, and into 2013 and 2014, inflation will more likely be below the bank’s two per cent target. The report predicted CPI could fall to around 1.3 in first half of 2013. The Bank also said the UK economy could be flat until middle of next year and it expected markedly weaker growth than it predicted in its August forecasts. It cut its 2011 and 2012 growth predictions to about one per cent. This was partly because the outlook for the world economy had worsened since its last report in August as well as ongoing needs to rebalance the UK economy.

Australia

Australia is the 13th largest economy in the world according to nominal GDP (current prices) and the 17th largest according to GDP (PPP). In the past two decades, the country has enjoyed a period of uninterrupted economic growth – an average of 3.3 per cent in real GDP growth annually. It possesses a well-diversified economy boosted by the strength of its services and resources industries. This been obtained through a stable and modern institutional and regulatory structure. Australia was ranked third in the 2011 Economic Freedom Index behind Hong Kong and Singapore and continues to provide an ideal environment for business and environment.

In 2010, Australia’s GDP (PPP) was $882.344 billion – a 3.94 per cent increase from 2009. The continent’s nominal GDP growth during the same period was even more amazing – GDP (current prices, dollars) grew from $994.25 billion in 2009 to $1.219 trillion, a 22.68 per cent increase. Spurred by robust business and consumer confidence, the economy is expected to grow even quicker in the next five years. 2011 to 2015 should see Australia’s GDP (PPP) grow by 4.81 to 5.09 per cent annually. By the end of 2015, Australia’s GDP (PPP) is expected to be $1.122 trillion.

Australia’s GDP (PPP) per capita is expected to experience healthy growth. In 2010, Australia’s per capita was the tenth highest in the world – growing from $38,633.17 in 2009 to $39,692.06. In 2011, GDP (PPP) per capita will increase by 3.52 per cent to $41,089.17. The following four years should see fairly consistent growth in Australia’s GDP (PPP) per capita, resulting in a GDP (PPP) per capita of $47,445.58 by the end of 2015. However, despite Australia’s strong economic growth, unemployment rate has been relatively high. In 2010, Australia’s unemployment rate was 5.192 – 0.22, more than the world’s average of 4.97 per cent.

The May 2011 budget is expected to create 500,000 jobs in two years and is aimed at bringing unemployment rates down to 4.5 per cent. According to the IMF, unemployment is only expected to see a marginal decrease to 5.025 per cent by the end of 2012. After which, the unemployment rate from 2013 to 2015 should remain constant at 4.8 per cent. Forecast for real GDP growth of two per cent for calendar year 2011 and 3.5 for calendar year of 2012 stemming from commodities and private investment in mining and liquefied natural gas. External current account deficit expected to narrow to one per cent of GDP in 2011 due to jump in terms of trade. Medium term current account deficit forecast to widen to 6.5 of GDP. IMF projects net external liabilities to increase to more than 65 per cent of GDP by 2016, which is relatively high for advanced economies.

Meanwhile, the Australian government has lowered 2012 growth forecast to 3.25 per cent.. The previous forecast for 2012/13 had been 3.75 per cent. The economy grew more than expected in the third quarter, driven by building and mining activity. GDP rose 2.5 per cent in the three months till the end of September from the same period a year earlier. Despite the stronger growth, there are fears about coming quarters with a slowdown expected in Europe and China. Despite the concerns, some analysts say Australia’s economy seems better placed to weather the global economic problems than many others. Australia’s central bank has cut interest rates in an effort to encourage economic growth.

Consumer prices in Australia rose by 3.5 per cent in the July to September quarter, from the same period in 2010. The probability of Australia’s inflation rate rising above three per cent in 2013 is slightly higher than in 2012 though there is a reasonable chance that both would be between 2-3 per cent. The RBA needs to consider lowering the cash rate further because it cut the cash rate by just 25 basis points while the outlook for inflation was lowered by around 50 basis points. Thus with the point forecast in 2013 being slightly higher, there is “slightly greater probability that inflation would end up above 3% in that year.

New Zealand

The New Zealand economy may have contracted 0.1 per cent in the first quarter but recovered in the current three months and is expected to pick up pace in the next two years, according to the NZIER Consensus Forecasts. Economists lifted their average forecast for economic growth in the year ending March 31, 2012, to 2.1 per cent from the two per cent expansion they expected in the last survey in March. Growth will speed to four per cent from 3.9 in the 2013 year. The latest survey shows greater inflation risks are expected over the next two years. Inflation is expected to average 2.8 in the March 2012 year, up from the 2.6 per cent pace predicted three months ago. For 2013, a rate of 2.7 per cent is expected.

New Zealand’s growth forecast has also been slashed by the IMF because of the devastating earthquakes in Christchurch. The earthquakes would slow economic activity to 0.9 this year, compared with a 1.5 per cent growth in GDP for 2010. However, reconstruction efforts would reignite growth next year, with GDP growth likely to rise to 4.1.. The current account deficit was forecast to fall to 0.2 of GDP from 2.2 per cent in 2010, and then widen to a deficit equating to 4.4 percent of GDP. Consumer price inflation was forecast to jump to 4.1 this year before slowing to 2.7 per cent in 2012. The earthquakes would cost the Crown around $8.5 billion over the next two years, which would largely be met through debt. The total cost was expected to be around $15b.

New Zealand’s economic growth is expected to be closer to three per cent in the year ending March 2013, weaker than the 3.4 forecast by the Treasury. The Treasury expects that growth will also be lower in subsequent years. However, easier monetary conditions, through a lower exchange rate and a potential delay to the start of expected rises in the Official Cash Rate, will provide some offset to impacts of a weaker world economy. The Treasury noted that the country’s operating deficit was NZ$131 million or 4.1 percent higher than forecast at NZ$3.36 billion in the four months ended October 31, 2011. Net debt at NZ$45.8 billion or 22.9 percent of GDP was close to forecast and gross debt at NZ$74.969 billion was 3.5 percent lower than forecast.

The latest HLFS showed that the labour market continued its gradual recovery over the September 2011 quarter.

Employment rose by 5,000 people during the quarter. The unemployment rate rose slightly to 6.6% during the quarter. This was largely because of a small rise in the labour force participation rate from 68.3 to 68.4 per cent.. Over the year, employment grew by 1.1 per cent.. The unemployment rate is expected to trend down to 5.3 in 2013, from 6.6 per cent this year. Employment growth will remain modest at 1.3 per cent in 2012, rising to 2.5 per cent in 2013, the report says. Nominal wages are seen rising 2.9 in 2012 and 3.5 per cent the following year.