Asia leads in BofA/Merrill's raised estimates for global growth

Stocks on the rise in July this index screen at a stock market in Shanghai. Growth in China is one of the main drivers behind BofA/Merrill raising its estimates for global growth this upcoming year.

NEW YORK – As world leaders break bread today in L’Aquila, Italy for the annual economic summit, at least one major economic research group has good news for them — the world economy is expected to grow a little faster than expected.

The driver behind the growth will be the much-maligned fiscal stimulus package in the US and robust growth in China, says Banc of America Securities-Merrill Lynch Research.

“Concerted government and central bank actions to pump money into key economies like the US and China are starting to show signs of bearing fruit,” writes Riccardo Barbieri, the head of international economics, global currencies and rates research at the financial institution, in a research report released on Wednesday morning.

For the world economy this means growth will come to 3.7 percent next year, up from a prior estimate by BofA/Merrill of 3.2 percent.

The main driver for the world economy will be Asia — especially China, which Mr. Barbieri estimates will grow by 9.6 percent, up from a prior estimate of 8.3 percent.

Other Asian economies will likewise do well: India will grow by 7.3 percent (up from a prior estimate of 7.1 percent), South Korea will see a 4 percent growth rate (up from 3 percent), and Taiwan will have positive growth of 4.5 percent (up from 3.5 percent).

According to the analysis, Europe will barely break out of its steep recession. Next year, the bank’s economists estimate growth at 1.2 percent compared to a slide of 4.4 percent in 2009.

While growth in Europe is minimal, the US will start to return to a more modest growth trend, says the report, a mid-year update.

The organization’s US economists, Drew Matus and Lori Helwing, now think the US economy will grow by 2.6 percent next year, compared to a previous estimate of 1.8 percent. Besides the fiscal stimulus package, they expect to see improved consumer spending and some new business investment to restock inventories. Instead of being a drag on the economy, housing will show a slight pickup.

And, US companies will continue to improve their exports to a growing world economy.

If the new improved forecast is on track, it may help the world leaders to grapple with a host of economic problems that will remain on the table next year: high unemployment, rising protectionism, and unsustainable fiscal deficits.

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