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Deloitte Research’s Global Economic Outlook for the 4th quarter of this year noted that Eurozone growth was slowing and that business sentiment had deteriorated over the summer amid signs of weakening global demand and disappointed hopes of solving the sovereign debt crisis. In the opinion of the authors:

‘This is a crucial time for Europe. If Eurozone leaders now act decisively to stabilize financial markets and turn their plans for closer cooperation into action, it could halt the downward spiral of deteriorating confidence and weakening activity. Real economic indicators are not yet indicating a recession, but markets remain unsettled by deteriorating sentiment and speculation about the future of the monetary union’.

The latest official forecast from the European Commission still anticipates 1.6 percent GDP growth for the Euro area in 2011. Current economic indicators support this view, with the economy still benefitting from strong momentum in the first half of 2011. Also on a positive note, industry orders for the Eurozone are still up 8 percent from a year ago and well above 2009 levels —despite declines in August and September.

Nevertheless, the risk of a return to recessionary times in Europe cannot be ruled out, and it is clear that any such slowdown would undermine the performance of other world regions and would almost certainly bring down corporate profitability in the US.

The emerging economies

Muscular economic growth has dominated this year in most developing economies, which over recent years have become the engine of the global recovery. Most are currently enjoying both strong domestic demand and a healthy outflow of exports, even if their growth rates have moderated in 2011 – a trend widely foreseen, as many emerging market economies have been tightening monetary policy in response to rising inflation, in the effort to engineer a ‘soft landing’ for themselves. For example, China’s tightening monetary policies began a year ago when policymakers raised interest rates and bank reserve ratios in the effort to fight inflation and slow growth. As a result, China’s growth rate is expected to slow from 9.1 percent in the third quarter to 8.4 percent in the fourth quarter (Financial Times).

Meanwhile, Brazil is set to overtake the UK to become the world’s sixth biggest economy this year, according to projections from the Economist Intelligence Unit. The EIU’s chief economist on Brazil attributed that country’s surge up the table to a growing consumer class and a booming trade relationship with China, a country in great need of commodities from Brazil, such as soya and iron ore. In the longer term, the EIU forecasts suggest that Brazil’s economy will be bigger than any in Europe by 2020 when it overtakes Germany to become the world’s fifth biggest economy, after China, the US, India and Japan (Daily Telegraph).

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