ANALYSIS:The recession was just a nasty, one-year blip and we can go back to normal. Well, not quite, writes PAT McARDLE

GLOBAL ACTIVITY is expected to resume strongly in 2010, according to the inaugural edition of the Global Economic Outlook published by international business group The Conference Board.

Projections by the board, whose chief economist Bart van Ark visited Dublin last month, suggest that from 2011 to 2016 global economic growth may even accelerate to 4.2 per cent, little different from the 4.3 per cent average between 2000 and 2008.

So that’s it then; the recession was just a nasty, one-year blip and we can now go back to normal. Not quite.

The contrast between the new and the old worlds could not be more stark. In 2009, the advanced economies, led by the EU-15 and Japan, will contract by 3.3 per cent, whereas the emerging market and developing economies will expand by 2.9 per cent. As their economic weights are roughly equal, one offsets the other, giving zero world growth this year. The recession, bad and all as it was, did not even manage to produce a minus figure at the global level.

However, the dynamics are changing rapidly. The advanced economies’ share of world GDP has fallen from two-thirds in 2000 to 48 per cent today, and is headed for one-third by 2016. It is the latter that should concern us.

Amazingly, for people in Ireland who are mired in recession, Van Ark sees global output per head returning to pre-crisis levels as early as 2010, when the world economy will expand by 3.5 per cent. However, little of this comes from the advanced economies.

They are slated to grow by 1.5 per cent, a decent positive rate, but one that is well below what we are used to.

The recession has done damage, and this shows up in the projected growth rate for 2011 to 2016, which remains at a lowly 1.5 per cent. By comparison, the advanced economies expanded at a 2.1 per cent clip between 2000 and 2008.

The US will no longer be the engine of growth; it will struggle to average 2 per cent a year from now on. Consumer spending is likely to be the weak point once the recovery effects, such as depleting inventories and fiscal and monetary stimuli wane.

While unemployment in Europe and Japan has not increased as dramatically as in the US, the pain may be spread over a longer period. Both regions are likely to experience slower recovery than the US as they “face many remaining structural problems”.

While exports may provide some relief, the high value of the euro and the yen relative to the dollar remain a constraint.

In fact, Van Ark’s forecast for EU-15 growth in 2010 is only 0.6 per cent, well below the consensus 1 per cent or more, and lower even than the recent EU Commission’s 0.7 per cent. All eyes will be on the European Central Bank, which this week unveils its updated forecasts for the euro zone. They are likely to disappoint the markets.

Incidentally, the Conference Board’s forecast for EU-15 medium term growth is only 1 per cent, roughly half its historic average. Only Japan fares worse; its growth is likely to average a miserable 0.5 per cent between 2011 and 2016.

In both cases, the projected GDP growth rates are below potential, which has been revised down to 1.6 per cent in Europe and 1.4 per cent in Japan. Though closer, growth in the US also remains below potential over the forecast period; not a pretty picture. Inflation in the old world at least is not likely to be a problem.

So wherein lies the future?

China provides only part of the answer. It has had its own Tiger, or should that be Panda, experience, recording an astonishing 11.5 per cent average growth in 2000-2008.

This was driven by consumer spending which gradually rose to high double digits, massive increases in bank lending to state-owned companies, and large government subsidies for car and home appliance purchases.

So far it has avoided a credit crisis, but Van Ark is clearly nervous.

China is likely to remain a global force, accounting for almost 30 per cent of future world expansion, but its GDP rates are projected to slow to 7.5 per cent.

However, even at this reduced rate, its contribution to the global growth rate will be four times that of the US and 12 times that of EU-15.

The message is: go east young man; or at the very least, make Mandarin compulsory in the school curriculum.

After China come India and the rest of developing Asia; together, they account for another quarter of world growth.

And the prospects for Ireland? Well, we are an exporting country and expect to export our way out of recession. Problem is, only about 10 per cent of our exports go to the emerging market and developing economies, which are forecast to experience growth of almost 6 per cent per annum over the next seven years.

The rest go to the advanced economies, which are projected to expand by 1.5 per cent.