The Economic State Of The World: What We Can Expect In 2013

By Lewis Humphries | January 06, 2013 AAA

Six years have passed since news of the global financial crisis first broke, and it would be reasonable to presume that in that time this economic downturn would have subsided considerably. This presumption is far from accurate, however, and there are even suggestions that the global economy is likely to decline further this year.

Despite this, however, there are tangible reasons for optimism. While consumer confidence in the U.S. may have decreased to 65.1 in December, the passage of the highly controversial fiscal cliff bill has allayed much of the apprehension that impacted businesses and individuals during the last financial quarter. Similarly, the recent buyback of Greek debt has been hailed as a success, with eurozone confidence improving for the fifth consecutive month in January.

With these points in mind, it is worth examining the world's leading individual economies and how they are likely to fare throughout 2013.

The Eurozone
With confidence in the eurozone continuing to soar, the year ahead seems to offer genuine hope to recession-hit nations such as Spain, Greece and Ireland. This rising level of confidence goes far beyond the Greek bond buyback, however, as falling unemployment in Spain and Germany's increasingly durable labor market have also contributed heavily toward boosting investor expectations. The decision of ratings agency Standard & Poor's to upgrade a number of debt-laden eurozone nations has also proved pivotal, especially in terms of encouraging investor confidence.

Although these signs are positive, it is unclear whether they can be sustained throughout the year. Aside from the increasingly prominent threat of conflict over Iran's controversial nuclear policy, which, if initiated, would send global energy prices soaring, the continued association of Germany with the eurozone also remains pivotal. With the German national election scheduled for September, and suggestions that the nation's economy is not profiting from its relationship with the eurozone, there is a possibility that a newly elected government may withdraw from the eurozone and trigger the dissolution of the single currency.

The U.S.
The signing of the fiscal cliff bill was just the beginning of a protracted journey to recovery. Although the hard-fought Jan. 1 deal may have prevented the U.S. from plunging into the abyss, the country has been left clinging to the cliff face by its fingertips as it enters the first financial quarter of 2013. With the battle between factions of the federal government unlikely to abate anytime soon, the nation's biggest challenge remains its capacity to reduce the deficit responsibly while stimulating economic growth.

That said, the U.S. economy is continuing to show strong signs of tentative growth. Most notable is the improvement in the domestic housing market, with sales of existing homes expected to rise beyond 4.98 million during 2013. With prices also expected to gain an additional 3.3%, the housing market is set to experience the highest rate of growth since 2007. Allied to rising job creation and a four-year low unemployment rate of 7.8%, these improvements could act as an economic engine and drive the U.S. toward a sustainable recovery. A U.S. recovery would be particularity good news for the global economy, so long as the federal government does not become too preoccupied with reducing spending and implementing short-term austerity measures.

The Emerging Economies
Emerging economies are unique in the current climate, as they have managed to display considerable resilience in the face of the global financial crisis. This resilience distinguishes them as being vital to a prosperous 2013, especially considering the issues facing the U.S., U.K. and Europe. While the world's economy is expected to grow by 3% during 2013, the vast majority of this growth will be recorded in emerging economies such as India, China, Brazil and Russia, with the average growth rate among these evolving nations expected to reach 5% in the year ahead.

In terms of individual performance, it is the Indonesian economy that remains the most impressive. Driven by a strong investment climate and reliable domestic consumption, it is expected to expand by a further 6.3% in 2013, which follows on from accelerated growth of 6.5% last year.

When you consider Indonesia's growth along with rising exports to emerging economies such as Brazil and China, it is clear that the emerging nations are set to play a huge role in stimulating global development. The key for advanced economies is to tap into these evolving markets and drive their own growth through international trade and investment.

The Bottom Line
Despite the continued threat of global recession, there are tangible signs that the world's economy is beginning to experience genuine growth. Thanks to steadily rising investor confidence and improved economic performance in the eurozone and U.S., respectively, it is conceivable that these nations could emerge from recession and enter a period of sustainable recovery. Alongside the accelerated growth rates of the world's evolving economies, this recovery would go a long way toward providing long-term relief from the seemingly omnipresent financial crisis.

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