Global Economy Reviews
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.
30.12.2007 14:02 World Economy Review - December 2007
The World Bank released figures for its latest estimates of individual country and world GDP. These estimates are based on the International Comparison Program (ICP) of prices conducted in 2005 for 146 countries.
The principal outputs of the ICP are estimates of Purchasing Power Parities (PPPs) benchmarked to the year 2005. PPPs are used instead of exchange rates to convert national economic measures such as gross domestic products into a common currency. By taking account of price differences between countries, PPPs allow comparisons of market size, the structure of economies, and what money can buy.
The report also provides estimates of gross domestic product (GDP) for 146 economies, along with GDP per capita, and their price level index (PLI), which shows which economies are cheapest and which are most expensive when currencies are converted using market exchange rates.
The report showed that twelve economies account for more than two-thirds of the world`s output. Seven of them are high-income economies (United States, Japan, Germany, the United Kingdom, France, Italy and, Spain), and five are developing or transitional economies (China, India, Russia, Brazil, and Mexico). The five largest developing economies account for more than 20 percent of global output and over 27 percent of the world expenditures for investment purposes.
Overall, the 2005 benchmark results showed that the size of the world economy measured in PPP terms is smaller than previous estimates. By that measure, the U.S. share was just 23% of global gross domestic output; China`s economy shrank by 40% to $5.3 trillion, about 10% of global GDP. Under the calculations, India had 4,0% of global GDP, Russia had 3,1%. Also, Russia dominates the CIS regional economy with three-fourths of the total and two-thirds of the investment shares.
Measured by GDP per capita, the five richest economies were Luxembourg, Qatar, Norway, Brunei Darussalam, and Kuwait. Collectively, they account for less than 1 percent of the world`s output. Seventeen economies have a GDP per capita of less than $1,000. The world average is approximately $8,900 per capita.
30.11.2007 23:47 World Economy Review - November 2007
The world economy has been growing more slowly after global unemployment jumped to 6.3 percent last year, the highest in a decade, the United Nations reported in November. Because it is the world`s largest economy, the United States and its weakening housing market are "the major drag for this global slowdown," said the U.N. report.
It puts the expected growth of 2007 world gross product at 3.2 percent, down from an average 3.8 percent a year during the previous decade. "We see a number of worrisome trends," said Sha Zukang, the U.N.`s undersecretary-general for economic and social affairs. "Globally, despite robust rates of economic growth, employment creation is lagging behind growth of the working-age population".
Some 195 million people were unemployed in 2006, an increase that despite continued growth in global economic output is "giving rise to the phenomenon of jobless growth," the report said. The U.N. economists said that for the first time in history, the service industry, accounting for 40 percent of all jobs, overtook agriculture as the biggest employer. "The world is rapidly becoming an economic system with employment dominated by the service sector, in which many jobs are low-paying and precarious and are not covered by formal mechanisms of social protection," the report said.
It said the unemployment rate was highest, at 12.2 percent, in the Middle East and North Africa, followed by 9.8 percent in sub-Saharan Africa, 8 percent in Latin America and the Caribbean, 6.6 percent in Southeast Asia and the Pacific, and 6.2 percent among developed nations` economies.
The International Monetary Fund said Thursday it would likely revise lower its 2008 estimate of world economic growth due to financial market turmoil and surging oil prices. "Global growth in 2008 will likely be lower than we anticipated in the World Economic Outlook," IMF spokesman Masood Ahmed said at a news conference.