MAPI Global Report: Doubts About Recovery Subsiding

Doubts about the reality and sustainability of the global economic and financial crisis are subsiding among governments, financial markets and business leaders, according to the Manufacturers Alliance/MAPI Global Report – April 2010. Concerns remain, however, about the short-term challenges of monetary policy adjustment and longer-term fiscal troubles, particularly in advanced economies.

In the report, economist Cliff Waldman writes that lingering concerns about recovery "must be placed in the context of a world economy that is clearly rebounding from a deep bottom."

"There is the likelihood that a handful of emerging market nations, notably China, India, Brazil, and South Korea, will disproportionally lead world growth in the early years of the new expansion with a forward momentum that is likely to be strong enough to compensate for residual elements of darkness in the industrialized economies' outlook," Waldman said.

MAPI anticipates that the growth rate of total U.S. exports of goods and services will be 9.2 percent during 2010 as compared to a nearly 10 percent contraction in 2009. This is expected to be followed by 7.6 percent growth in 2011. The report notes that in post-World War II U.S. economic history, export declines of the magnitude seen in 2009 were followed by stronger and more certain rebounds.

Most advanced economies are expected to experience marginal recoveries in gross domestic product (GDP) and in manufacturing output over the next two years. GDP in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom, and Sweden), and Japan, is expected to rise incrementally from an estimated 1.9 percent growth during the first quarter of 2010 to 2.6 percent growth in the second half of 2011.

Developing countries, as has been the case in recent decades, will likely grow at a faster pace. Aggregate developing country GDP is expected to increase by 3.7 percent during the first half of 2010 before gradually reaching a high of 4.6 percent growth during the second half of 2011.

MAPI expects U.S. dollar volatility to continue into the early years of the global economic recovery, particularly against the currencies of the industrialized economies. It projects a 5 percent appreciation on a compound annual basis during the second quarter of 2010, followed by a 1 percent appreciation during the third quarter. In the fourth quarter of 2010, MAPI expects the dollar to resume a modest path of depreciation with intervening periods of appreciation as global financial tensions periodically arise.

Against the currencies of the developing countries, MAPI envisions the dollar will fall by 5 percent during the second and third quarters of 2010. Following that, and mostly as the result of an adjustment of the dollar against East Asian currencies, it forecasts the dollar to further depreciate by 10 percent during the fourth quarter of 2010 and the first quarter of 2011. It should then moderate to a 3 percent decline during the second and third quarters of 2011 before appreciating by 5 percent during the fourth quarter.

"While the continued rebalancing of global trade accounts will be a negative for the dollar, financial and fiscal jitters will likely produce periodic upside surprises in the path of the greenback," Waldman predicted.