A military conflict between North and South Korea, which inevitably would involve the US, would shred economic confidence in the region and push key parts of the world economy back into recession, says the Economist Intelligence Unit’s (EIU) latest Global Outlook Report.
Although the EIU expects Korean tensions to stop well short of war, these political tensions come at a time when key parts of the global economy are struggling to regain momentum.
Although the US economy is strengthening and some key emerging markets will grow faster this year than in 2012, a synchronised global upturn is less likely in the next six months.
The EIU now expects growth in global economic output to be no higher in 2013 than 2012, although it continues to expect a better showing in 2014. Among the major developed economies, the US is the most promising, according to the EIU.
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Despite some softening in March, the first-quarter performance was strong by recent standards. The outlook is also improving, if fitfully, for BRIC stalwarts India and Brazil, while a handful of smaller emerging markets, especially in East Asia, are on an upswing.
Elsewhere the outlook is uncertain at best, and in some cases is deteriorating. The euro zone remains the greatest concern. The EIU has reduced its 2013 GDP forecast for the region to -0.7% from -0.4%, a second straight year of recession, deepening concerns about public support for the single currency over the medium term. The EIU does not expect a return to sustained growth until 2014. The EIU has also made a preliminary downward revision to its 2013 forecast for GDP growth in China, to 8% from 8.4%.
Manufacturing and retail sales were weaker than expected in Q1 2013, with the economy growing by 7.7%–down from 7.9% in Q4 2012. However, the EIU has raised its 2013 forecast for economic growth in Japan to 1.1% from 0.9%, largely owing to 2012 data revisions.
More significantly, The EIU is making a significant change to its exchange-rate forecast in light of the Bank of Japan’s aggressive plan to double the money supply as a means of fighting deflation and spurring growth
