The Forecast Also Rises (2)

06/09/2013 at 5:35 pm

About 18 months ago this blog noted some upward revisions to the regular growth forecasts made by the IMF. Coming in the wake of the carnage of summer 2011, which at one point threatened to see the bond market break Italy, this was a welcome reminder that observers can also perceive the economic outlook to be brightening. Of course this was followed by the shock of the election results in Greece. Thereafter gloom, particularly over Europe, took hold again for a while.

This week, however, a different group of economists had another try. The OECD published an “Interim Economic Assessment” on Tuesday which saw real GDP forecasts for the UK and key eurozone countries revised up. Germany, which had been expected to show growth of 0.4% for 2013 in the organisation’s full report back in May, is now expected to deliver 0.7%. The French outlook has been revised up from -0.3% to 0.3%. And in the UK, growth is forecast at 1.5% as against 0.8% in the spring.

In fact this is not very surprising news. Purchasing manager surveys, which indicate the level of expansion or contraction in activity across different sectors, have been posting new highs of varying significance over the last few months. The composite PMI indicator for the eurozone turned positive for the first time in eighteen months this July, and last month rose to a level not seen since before the 2011 crash. In Britain, the manufacturing sector PMI hit the highest point since Q1 2011, the construction sector survey reached a six-year high and the service sector showed the strongest level of activity since the end of 2006. (The UK benefits both from the turnaround across the Channel and from the ongoing recovery in residential property, whose importance we highlighted some time ago.)

There is always something to go wrong of course. Apart from deep scars in Europe, flare-ups in emerging markets and sluggish global growth there is now the escalation in rhetoric to consider between the world’s two nuclear superpowers who find themselves ever more overtly on opposing sides of the same grisly civil war. Nonetheless, left field events – including war – aside, it is good to see a respected body such as the OECD joining the ranks of the cautious economic optimists.

Taken together, the countries of the European Union form the largest economy in the world. Even a subdued and sub-trend pace of recovery here will come as a significant boon to global activity.

We have become so used to recession in recent years that we are only just beginning to adapt our perspective to that context.

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