Global Economy Reviews
05.06.2008 21:36 World Economy Review - May 2008
A newly released U.N. Economic Survey forecasts a global downturn but does not predict the gloom and doom scenario which is being bandied about by so many pundits and politicians. While world economic growth, which registered 3.8 percent in 2007, is expected to "decline markedly" to 1.8 and 2.1 percent for 2008 and 2009, respectively, the prospects are not all dim. Naturally, the big question hinges on the economic performance of the United States.
The report World Economic Situation and Prospects 2008 states that the U.S.`s 2007 GDP growth rate of 2.2 percent will certainly decline by about 0.2 percent this year due to the combination of the housing crisis, energy prices and slumping consumer confidence. Japan, another global economic pillar, saw expansion of 2.1 percent in 2007, but is expected to see a slowdown in 2008. Western Europe, which witnessed a strong 2.6 percent GDP growth last year, could see a slowdown to about 1 percent this year. Uncertainty clouds the horizons.
Beyond the obvious, there`s much good news and indeed impressive results which are generally not being seen. For example, "defying global storms, German gross domestic product leapt by 1.5 percent in the first quarter, the fastest quarterly rate in 12 years," according to the Financial Times. Likewise, the French economy grew unexpectedly by 0.6 percent in the same period. "A dramatic German growth rate and better than expected economic performance from France, powered a eurozone rebound at the start of this year, in contrast to the sharp slowdown in the U.S." the paper adds. And don`t forget that with conservative and market-oriented governments, both Germany and France are re-discovering economic prosperity and trimming, and, if ever so slowly, the bloated social welfare state.
The World Economic Situation adds, that among new members of the European Union, such as Poland, Slovakia and Slovenia, performance last year "was robust with a growth average averaging 6 percent." This year growth is only expected to slip by one percent.
East Asia without question is another star player with GDP growth in the region reaching an impressive 8.8 percent in 2007. This year will see a moderate slowdown given a deceleration of exports. Indeed, the growth in world trade decreased 4.7 percent in early 2008, down from 7.2 percent last year due to weak import demand from the U.S. The report adds, "as a result, dynamic exporters of manufactured goods, such as China, reported significant deceleration of export volumes." Nonetheless, the trade boom in recent years has filled the coffers in mainland China where the reserves reached a staggering US$1.5 trillion by the end of 2007.
02.05.2008 21:46 World Economy Review - April 2008
The International Monetary Fund cut its 2008 outlook for world economic growth for the second time this year, in a move that acknowledged housing and credit problems in the United States were exacting a heavy toll on the global economy.
The IMF said it expects the pace of global growth to slow to 3.7 percent this year, down from its January forecast of 4.1 percent and lower still from the 4.8 percent rate it predicted in October last year. The latest revision puts world growth at its lowest since 2002, when growth was 3.1 percent, according to IMF data. "I can confirm the IMF`s current aggregate world growth forecast for 2008 is 3.7 percent," an IMF spokesman said, confirming reports about the IMF`s World Economic Outlook due on April 9. Earlier, IMF Chief Economist Simon Johnson said the U.S. economy has come to "a virtual standstill" and will remain weak in coming quarters owing to deeper problems in housing and credit markets. Still, Johnson avoided saying the United States was in recession. Media have reported that the IMF growth outlook will put U.S. economic growth for 2008 at 0.5 percent from a previous forecast of 1.5 percent.
Growth in Europe is expected to slow significantly in 2008-09, reflecting spillovers from weaker global growth, rising commodity prices and the strains in financial markets. Europe`s economy is resilient but not immune to global economic threats, the IMF said as it defended its recent gloomy outlook on the region. According to the IMF, GDP growth in the Eurozone will slow to 1.4% this year and 1.2% in 2009. In 2007, growth was 2.6%. The projections in the Regional Economic Outlook have not changed from those in the World Economic Outlook released on April 9th. Michael Deppler, the IMF`s European director, who is about to retire, said this represented a "middle-of-the-road view" of the likely effects of economic shocks such as the global financial crisis, a looming US recession and the euro`s appreciation to record levels.
Economic growth in Russia and emerging European economies will likely cool this year as financial market turmoil curbs access to credit and demand for oil, the International Monetary Fund said. Russia, which logged growth of 8.1 percent last year, will see growth moderate to 6.8 percent this year and then 6.3 percent next year. Growth in the Commonwealth of Independent States was expected to ease to 7.0 percent this year from 8.5 percent in 2007. Risks to the outlook were tilted to the downside.
01.04.2008 23:32 World Economy Review - March 2008
The Organisation for Economic Co-operation and Development (OECD) stopped short of predicting a recession in the US, but said GDP growth was likely to fall from just 0.1% during the first quarter of 2008 to 0% in the second quarter. The gloomy prediction comes as the International Monetary Fund said the US economy "remains very weak, certainly close to a possible recession". The leaked report, which was a draft version of the IMF`s World Economic Outlook, also reportedly said the dollar remained "rather strong" despite recent depreciation. In an interim assessment of the economic outlook for OECD countries, the group said: "The most recent dataflow, including the decline in payroll employment witnessed in the first two months of 2008, suggest that the US economy is now essentially moving sideways, if not contracting outright. "It may be premature to declare a recession but, with the pace of activity so far below potential, economic slack is widening rapidly." But other regions are expected to fare better, with Euro Area countries expected to see GDP growth of 0.5% in the first quarter before falling to 0.4% in the second. Predictions for the UK are the strongest out of all the countries in the OECD study, with economic growth of 0.6% for both quarters pencilled in, although this is down on GDP growth of 0.8% during the same period last year. Global GDP is expected to again grow strongly in 2008, despite the increasingly serious problems in the US economy. In its January update the IMF forecasts global GDP growth in 2008 to be 4.1%, down 0.3% percentage points from an earlier forecast, but well above the long-term average of 3.5%.
01.03.2008 19:48 World Economy Review - February 2008
The recent growth in the U.S. economy has depended on the American consumer to stimulate demand; economic vitality has been supported by consumer spending. However, rising energy costs, increasing unemployment and subprime mortgage credit crunch problems call into question the consumer`s contributions to future economic activity. Despite these issues, we enter 2008 with a world economy that is increasingly integrated and not solely dependent upon the United States. The following are a few thoughts about globalization, the economy and recession:
The U.S. economy has always been the engine for economic growth globally. But increasingly, emerging and developing markets are assuming a greater role in sustaining economic growth. Countries such as China and India are recognizing that domestic economic demand is also an engine of growth and are lessening their demand on export-driven economic growth. Where this transition will leave the U.S. economy in 2008 is not clear, but it is evident that the increased demand for U.S. products abroad will create a strong growth factor domestically.
BusinessWeek reports that in the past 10 years, growth in the U.S. economy declined from 3 percent annually to 2.6 percent, while global growth has increased from 3.2 percent to 4.4 percent — both trends that are expected to continue in 2008. In addition, a significant portion of U.S. export growth has come from the faster-growing emerging markets, with U.S. goods shipped to emerging markets increasing from 38 percent to 45 percent in the past two years. In China, U.S. exports have increased 25 percent each year for the past five years.
Much of this U.S. export growth is being fueled by domestic demand abroad versus historical, export-driven growth. In 2008, exports will provide a positive boost to U.S. economic growth — even as U.S. demand for consumer goods slows and imports decrease.
Economists generally think that a smaller 2008 trade deficit will contribute to economic growth. While imports continue to rise for the moment, the rate of that increase will slow as domestic spending drops. Due to the trade gap, exports need to grow 60 percent faster than imports just to remain even. The drop in the dollar`s relative value contributes to the trend as exports are cheaper and imports more expensive. An increasingly integrated global marketplace makes protectionism less likely and less desirable as a policy option.
Foreign trade is a bright spot for growth in 2008. It will add one-half to three-quarters of a percentage point to real GDP growth in 2008. This will be the second year of transition to a more balanced global economy. In trade, the declining global value of the U.S. dollar is a positive, making U.S. goods more price competitive overseas. However, the counter is that the decline in the dollar has also created inflationary pressures as the cost of imports increase.
On a trade-weighted basis, the dollar`s 24 percent decline since early 2002 was the result of its being at an unusually high, overvalued level. The dollar had risen 72 percent from 1992 to 2002; even now, it remains 42 percent above the 1985 peak.
A challenge to the declining dollar is the decline in purchases of U.S. long-term securities by foreigners. Despite a narrowing of the trade gap the U.S. still needs some $60 billion per month from overseas to finance the trade imbalance. But that, coupled with the downward trend in the dollar`s value, does not mean our dollar is about to lose its role as the dominant currency in the global economy. Abu Dhabi`s $7.5 billion infusion of capital into Citigroup is a reminder that there is a lot of foreign capital; it is also an endorsement of the dollar in the long run.
Globalization is certainly a positive economic force, but the question remains: will the world`s leading economy head for recession in 2008? Of 54 economists polled at year`s end by BusinessWeek, only two believed we would enter a recession in 2008. However, all 52 votes for no recession depended upon further rate cuts by the Federal Reserve. The challenge ahead for the Fed is to balance inflationary pressures and growth. The new global economy is a factor that enters into the equation for 2008 in a way that it never has historically, making the Fed`s efforts to balance even more difficult. Thus, with data arriving daily, the jury is still out on a U.S. recession in 2008 by most accounts. But most think it will feel like one, no matter what the verdict. (Evansville Business Journal).
03.02.2008 16:16 World Economy Review - January 2008
The world economy faces serious challenges in sustaining the strong economic growth of the last few years in 2008, the United Nations said in World Economic Situation and Prospects 2008 released in New York.
The baseline forecast of the United Nations is for world economic growth to moderate to 3.4 percent this year, following the trend line down from 3.9 percent in 2006 and 3.6 percent in 2007.
But there is a clear and present danger of the world economy coming to a near standstill, the annual report warned. In the second half of 2007, the bursting of the housing market bubble in the United States and the unfolding credit crisis have induced uncertainty across global financial markets. This together with the decline of the U.S. dollar and the unresolved problem of the large global imbalances could combine to further drag world output down. To prevent this from happening, the United Nations advised concerted international policy action to address the global imbalances and calm currency markets.
Meanwhile, the world economic crisis evoked by economic recession in the United States will not have a significant impact on Russia, Russian Deputy Prime Minister and Finance Minister Alexei Kudrin said. "Today, Russia, just like China, will not be significantly subjected to the world crisis. One can say that we will sneeze, and maybe will not sneeze at all, but we will feel," Kudrin said on the air of Channel One Russia. Economic growth rates have been narrowing steadily in the U.S. over the past three years: from 3.6% to slightly more than two percent last year, the minister said. Meanwhile, Russia has "speeded up as to the economic growth" in the same three years, he said, adding that the GDP grew 8.1% in 2007, if compared to 7.4% in 2006.
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