Overall the recovery is progressing, but this masks significant divergences between regions and even between countries within regions. Most prominent is that the expansion in the United States is becoming stronger while the euro zone remains mired in recession.
The Chinese economy appears to be losing steam, while other parts of emerging Asia appear to be quite strong. The Gulf countries fall into the category of those doing relatively well, in fact better than expectations at the start of the year, but they could arguably do better still.
Attitudes are conflicted by the contrasting fortunes of Europe and the US. How can the US, or the rest of the world for that matter, continue to improve while the euro zone presents so many risks to growth? For the time being at least, euro-zone fragilities are being marginalised by the relative strength of the US, Japan and emerging markets.
Global markets have also been buoyed by liquidity injections from the European Central Bank (ECB) designed to ameliorate deteriorating conditions in the euro-zone's financial sector. Whether these situations are sustainable or not is questionable, however. The ink on the ECB's second long-term refinancing operation in late February was hardly dry before doubts about the Spanish banking system and economy began to resurface in March. Political uncertainties in France, Greece, Italy, Ireland and the Netherlands also loom uncomfortably as the middle of the year approaches, while activity indicators suggest that the euro zone as a whole is on the verge of contracting again in the second quarterafter a weak first quarter.
Certainly, the risks in the euro zone make it doubly important that other major economies step up the pace and maintain the momentum of their recoveries, stimulating their economies further if necessary.
The US has started the year well, although the growth rate of 2.2 per cent in the first quarter disappointed expectations. Consumption growth was a positive surprise, however, at 2.9 per cent, and early indications for second-quarter growth are also encouraging. But, the US authorities remain rightly cautious about the outlook, given the sluggishness of the labour market, and conscious of the risks to growth posed by Europe and by oil prices.
The year-end will present additional challenges as fiscal policy is likely to exert a significant drag on growth next year, should existing tax breaks not be renewed. This will be further complicated by the US presidential handover at the turn of the year after the election in November.
Asia is also revealing contrasting fortunes between China and Japan to some extent, but more broadly between China and the rest. As is now widely known, China's economy grew by 8.1 per cent in the first quarter, down from 8.9 per cent in the fourth quarter. But even this growth is questionable, as are the assumptions that adjustments to monetary policy will succeed in stabilising things, given substantial overhangs in the property market and liquidity pressures in the banking sector.
Fortunately offsetting this slowdown, Japan for once is picking up some momentum, benefiting from strong public works and reconstruction one year on from the earthquake and tsunami. Other parts of Asia, including Singapore and South Korea, are showing resilience, while the large economies of Latin America, such as Brazil and Mexico, are pushing hard to stimulate growth.
As far as the Gulf is concerned, its performance this year has been encouraging, with the oil and non-oil sectors showing some buoyancy. On its own, the GCC accounts for a relatively small part of the world economy, similar in size to the economies of Spain or South Korea, so its contribution to global growth is not enormous.
