Risks to Global Growth Seen Increasing as U.S. Economy Stumbles, Key Countries Slow

Dollar decline, U.S. export growth seen continuing; China, India and Mexico likely to see slowdowns, Manufacturers Alliance/MAPI projects


Arlington, VA — January 28, 2008 — Mounting concerns over the U.S. economic outlook, along with evidence of slowing in other key countries, suggest that 2008 will be a volatile and uncertain year for the global economy, according to a new report from the Manufacturers Alliance/MAPI.

In MAPI's "Quarterly Forecast of U.S. Exports, Global Growth and the Dollar: First Quarter 2008 through Fourth Quarter 2009," economist Cliff Waldman observes that recent housing, manufacturing and job growth data, which indicate that the U.S. economy may have lapsed into a recession, along with the continued crisis in global credit markets, record high oil prices and emerging global inflation, all loom as risks to the world economy.

"U.S. weakness has a negative impact on the export prospects of many key countries that depend on external demand for growth," Waldman said.

At present, exports may, however, provide a bit of good news for the United States. During 2008 the positive impact of dollar depreciation is expected to partially offset the negative impact of slower growth. The report projects a rise in the annual growth of total U.S. goods and services exports, from 7.7 percent during 2007 to 8.7 percent during 2008, and to 9.2 percent in 2009.

Broader Slowdown

Growth in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom and Sweden) and Japan, is expected to slow from 2.4 percent on a compound annualized basis during the fourth quarter of 2007 to 2.2 percent during the first quarter of 2008 and then 1.9 percent for the balance of 2008.

Subsequently, catalyzed by an expected improvement in the U.S. economic outlook, non-U.S. industrialized country growth is projected to accelerate to 2.0 percent for the first half of 2009 and then to 2.2 percent during the second half.

Due to expected slowdowns in China, India and Mexico, cumulative developing country growth is expected to slow from an estimated 5.4 percent during the fourth quarter of 2007 and first half of 2008 to 5.3 percent during the second half of 2008. Further declines are anticipated in 2009, with growth slowing to 5.2 percent in the first half, 5.1 percent during the third quarter of 2009, and then 5.0 percent during the fourth quarter of 2009.

Dollar Seeks Bottom

MAPI believes that the dollar adjustment will likely continue throughout 2008. Report author Waldman predicts that the dollar will decline by 8 percent on a compound annual basis against the currencies of industrialized trading partners during the first quarter of 2008 and then by 5 percent during each of the subsequent three quarters.

Against the currencies of the developing countries, MAPI forecasts a decline of 6 percent during the first quarter of 2008, 10 percent during each of the middle two quarters, and then 5 percent during the fourth quarter.

"U.S. economic troubles and a rebalancing of global current accounts will place downward pressure on the dollar throughout 2008," Waldman concluded.

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