World expects mixed economic fortunes in 2011
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Call it the year of feast and famine.
Many of the world's big advanced economies have pledged frugality for 2011 while fast-growing emerging markets run the risk of overheating. The global economy must withstand both forces in order to live up to growth expectations.
Dictionary company Merriam-Webster ranked "austerity" as its No. 1 word of the year for 2010 because so many people looked up the definition on the company's website when Europe's debt troubles exploded. (This wasn't the first time the global economy featured so prominently. Two years ago, the top word was "bailout.")
Many of those austerity promises kick in next year. Portugal has proposed 5 percent pay cuts for civil servants. Spain's parliament approved a budget that includes a 7.9 percent reduction in public spending. Ireland plans to cut 4 billion euros in spending.
Those budgetary measures are part of the reason why economists polled by Reuters think the eurozone economy will slow to 1.5 percent next year, down slightly from 2010's already sluggish 1.7 percent pace.
The risk is that a synchronized round of fiscal constraint puts an even bigger-than-anticipated drag on growth.
The International Monetary Fund estimates that after two years, a budget deficit cut of 1 percent of gross domestic product lowers economic output by one-half of a percentage point and raises unemployment by one-third of a point.
The United States faces its own austerity fight as Republicans in Congress push for spending cuts. US economic growth for 2011 looks somewhat stronger than Europe's although still well short of what is needed to repair the job market.
Sung Won Sohn, a California State University economist, expects 3 percent growth next year but says the lack of jobs remains the "Achilles heel" of the economy.
It is no secret that emerging markets are growing far more quickly than advanced economies. The IMF estimates emerging markets will grow by 6.4 percent next year, almost three times the rate of developed nations.
The IMF sees 4.2 percent global growth for next year, a step down from 2010 but above the recession-hit rates of the previous two years.
