London, 19 January 2011

Economist Intelligence Unit: Key changes since December 10th 2010:

• The Economist Intelligence Unit has raised its forecast for 2011 US GDP growth to 2.7%, from 2.2% last month. US data at the close of 2010 were stronger than expected, led by steady gains in consumer spending and manufacturing. This has created additional momentum into 2011. We also expect a slightly larger impact from the government’s December stimulus programme, which extended previous tax cuts and introduced new ones.

• We have also raised our 2011 GDP growth forecast for the euro zone to 1.5%, from 0.9% last month, driven mainly by faster expansion in Germany. Exports and investment propelled the German economy in 2010, and there is now some evidence of improving consumer demand. The combined upgrades to the US and euro zone have pushed up our 2011 global growth forecast to 4% (at purchasing power parity exchange rates), from 3.8% last month.

• We renew our concerns about the crisis of confidence affecting the euro zone. We still expect Portugal to require financial assistance in early 2011 but assume that Spain will manage without official funding. Bond yields in both countries have, however, continued to rise, straining their ability to meet funding obligations.

• Our core scenario envisions a relatively benign slowdown in China, but there are risks of a more volatile outcome if inflation continues to rise. There is clearly some way to go in China’s monetary tightening cycle, potentially exposing state-owned banks to the effects of bad loans.

• We have increased our forecast for the average price of Brent crude in 2011 to US$90/barrel, from US$82/b previously, driven partly by the increase in our US and euro zone GDP forecasts, but global consumption growth was already rebounding strongly in 2010 despite the OECD's relatively fragile economic recovery.

• Most commodity prices continue to rise, and our food, feedstuffs and beverages index is now expected to have increased by nearly 12% in 2010, and is forecast to climb further, by almost 20%, in 2011.

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