FRANKFURT (MNI) – Western Europe is bucking the trend in a
darkening world economic climate in the third quarter, the Ifo institute
said Wednesday, citing the results of its latest World Economic Survey.

The global economic climate clouded over slightly in the third
quarter, as downward revisions to economic expectations for the coming
six months more than offset the better assessment of current conditions,
the German economic research institute said.

“The results indicate that the recovery of world economic activity
will continue at a slower pace in the second half of the year,” Ifo

Western Europe bucked the overall trend, showing a stronger
improvement in the assessment of current conditions than the worldwide
average and a less severe downgrade of the six-month economic outlook.
“The climate indicator as a whole rose marginally,” Ifo said.

Europe’s outperformance should partly account for the swing in the
fair-value currency assessment. “In contrast to the previous surveys,
the euro was assessed as slightly undervalued vis-a-vis the US dollar,”
Ifo said.

“Overall, in the coming six months after adjustments have
occurred the experts foresee largely stable exchange rates for the
four major world currencies, the euro, the US dollar, the Japanese yen
and the British pound,” the institute noted.

In North America, the indicator fell below its long-term average,
Ifo said. Although the assessment of the current economic situation was
more favourable than in the previous survey, it remain below the
“satisfactory” level. “The expectations for the coming six months,
however, are less optimistic,” Ifo noted.

“In Asia, the favourable economic situation has improved further,
but the optimism for the next half year has declined somewhat,” it

Given expectations of lower growth — coupled with unchanged
inflation expectations of 3.1% — fewer of the 1,103 experts in 116
countries surveyed expect increasing short-term and long-term interest
rates in the course of the coming six months than in the spring survey.

The deteriorating global economic climate will not come as a
surprise after the US Federal Reserve downgraded its economic outlook
earlier this month and the European Central Bank warned in its latest
Monthly Bulletin that there could be some moderation in the pace of
global expansion, particularly in emerging economies.

Despite the slightly more upbeat assessment for Europe, the
worsening global outlook points to risks that the region’s export-lead
recovery might be hit harder than previously expected. Any revaluation
of euro could further aggravate the downward impact on growth.

World Economy (base year: 2005=100)

3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10
Climate 74.2 60.6 50.7 65.2 79.6 91.4 99.5 104.1 103.2
Situation 87.9 69.2 46.7 39.3 43.0 54.2 67.3 80.4 93.5
Expectations 61.4 52.6 54.4 89.5 114.0 126.3 129.8 126.3 112.3
The Ifo World Economic Survey is conducted in co-operation with the
International Chamber of Commerce.

— Frankfurt Bureau: +49 69 720 142; email: —

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