Joseph Bonney | May 18, 2011 10:37AM EDT
The global economic climate is in better shape than at any time since 2007 but could be hurt by public budget deficits, inflation and unemployment in the months ahead, according to a survey of more than 1,000 economists in 120 countries.
The quarterly World Economic Survey by the Paris-based International Chamber of Commerce and the Munich-based Ifo Institute for Economic Research said its indicator of the global economic climate hit 107.7 in April, above its 15-year average of 96.9.
Despite its overall optimism, the report highlights marked regional variations and problems that could upset further global economic recovery in the next six months. Public budget deficits topped the economists’ list of urgent problems, ahead of high inflation and unemployment.
ICC Secretary General Jean-Guy Carrier said the survey shows the economy is still recovering but that “if governments struggling to reduce their debts resort to increasing protectionism, there’s a real danger that further global economic recovery could stall. Governments must work together and encourage a multilateral trading system that can allow the global economy to continue regaining strength.”
With short- and long-term interest rates expected to rise, the report said further tightening of monetary policy is likely in most of the countries surveyed. Emerging economies such as China, Turkey and some Latin American countries are particularly concerned by high inflation as prices soar.
Survey respondents from Brazil were especially worried that their strong currency could lead to a loss of competitiveness or a process of deindustrialization. On average, worldwide consumer prices are expected to rise 3.8 percent over the year, up from 3.4 percent forecast in early 2011.
“The upswing of the world economy continues, but one should nevertheless be aware of the risks,” said Gernot Nerb, Ifo director of business surveys. “Downward risks for positive development have gained weight during the last months. If downside risks do not materialize, this could be a sustainable track for the world economy.”
Among the risks that could hit the world economy in the next six months, pushing it off the road to recovery, the ICC-Ifo report cited excessive international capital movements and potential oil price shocks driven by tensions in supply.
World economic growth is expected to reach 3.2 percent in 2011, up slightly from last year’s level. The economists said the main growth engines include China, India and Latin American countries such as Peru and Argentina.
Contact Joseph Bonney at jbonney@joc.com and follow him on Twitter @jbonney.