Dallas Fed: Global economic recovery coming in waves

The global recovery from the most recent recession is coming in waves. According to a new study from the Federal Reserve Bank of Dallas, emerging economies such as China and India are growing exponentially faster than advanced economies such as the U.S. and Japan. The study looks at macroeconomic factors that signal a recovery and analyzes trade patterns to further evaluate domestic stability. Real gross domestic product growth for the U.S. was 2% at the end of third quarter, according to the U.S. Department of Commerce. GDP is expected to drop and linger below 3% throughout 2011 for the U.S., Canada, the U.K., Japan and the Euro area (the advanced economies) with no sign of increases as the temporary factors supporting 2010 fade away, according to the report said. “Private demand is driving the recovery; however, a shift from fiscal stimulus to fiscal consolidation threatens the persistence of economic boost,” the report said. In the emerging economies, especially the so-called BRIC nations — Brazil, Russia, India and China  — GDP is expected to fall slightly, but will remain healthy. China’s GDP growth in 2010 was 10% and is expected to fall to 9% in 2011; India’s GDP growth is expected to remain level at 8%; Brazil’s is expected to fall to 4% from 8%; and Russia’s is expected to remain level around 4%. The report said an excess of liquidity is producing a rush of capital inflows to boost the emerging markets. Net capital flow to the markets spiked in 2007, at nearly 7% or $1.2 trillion, then fell to 2.2% by 2009. Foreign investments make up the majority of net flow to emerging markets, approximately $500 million in 2009, and portfolio investments increased to nearly $200 million the same year. President Barack Obama said Monday he is looking to increase trade between the U.S. and India to promote a strategic partnership between the two leading democracies of the world. Trade and defense agreements of the alliance are worth and estimated $10 billion and are expected to add more than 50,000 jobs to the U.S. economy. “By opening markets and reducing barriers to foreign investment, India can realize its full economic potential as well,” Obama said. “As G20 partners, we can make sure the global economic recovery is strong and durable.” Direct investment pushed stock prices upward in China, India, Russia and Brazil significantly this year. Since July, stocks have risen 43.4% in China, 23.1 percent in Russia, 14.8 percent in Brazil and 14.4 percent in India. Excess liquidity has been fueling the same trend in the U.S. by decreasing the value of the dollar, just at a more sluggish pace. The report said a weak currency stimulates exports, rebalances trade, and promotes growth. Since September, the dollar value has decreased 2.7% and trade has rebounded to the positive side of the trade index below. The Dallas Fed’s report notes that high unemployment is another dragging factor of economic recovery; however, the issue is universal. India’s unemployment rate is the highest at 10.7%, followed by the Euro Area (10.1%), the United States (9.5%), Russia (8.9%), Canada (7.9%), the U.K. (7.7%), Brazil (7.4%), Japan (5%) and China (4.5%). Write to Christine Ricciardi.