Five key challenges face the global economic recovery

Since 2010, the global economic recovery has gained strength, although emerging markets continue to outperform the subdued growth of major advanced economies. In 2011, new challenges have emerged, which will pose risks for some of the world’s largest economies. Euromonitor International forecasts world real GDP growth of 4.3% in 2011 down from 5.1% in 2010.

The five biggest challenges for the global economy include a weakening US economy, signs of overheating in emerging markets and continued uncertainty about the Eurozone debt crisis. However, there are some positive signs. Some European countries such as Germany have rebounded quickly and global commodity prices have stabilised, although pressures remain on the upside. The climate of uncertainty will have a negative impact on already cautious consumers. With rising inflation also squeezing disposable incomes, consumer spending is likely to remain below potential into 2012.

Discover the five biggest challenges facing the global economy.

  1. A weakening US economy (the largest economy and consumer market in the world) could have global repercussions. High unemployment and a potential government debt crisis will weigh on economic growth;
  2. The crisis in Japan, following the earthquake and Tsunami in March 2011, also impacted global supply chains and resulted in a downturn in the world’s third largest economy;
  3. Fears of government debt crisis contagion to larger Eurozone economies such as Spain and Italy continue to weaken investor confidence in the region, despite bailouts to Greece, Portugal and Ireland since 2010, and a second bailout to Greece in July 2011;
  4. Inflation is one of the biggest challenges facing governments as rising food and energy prices in early 2011 put pressure on economies around the world. There are signs of overheating in emerging markets, in line with fast growth and rapid capital inflows. With annual inflation at 6.4% in China in June 2011, worries about the second largest economy in the world have also emerged;
  5. Uncertainty remains significant in the Middle East and North Africa region (MENA) following revolutions in Egypt and Tunisia and the conflict in Libya in the first half of 2011. If social unrest spreads to larger oil producers such as Iran or Saudi Arabia, this would result in a renewed spike in world oil prices and heightened inflationary pressures.