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In the MAPI Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar for 2004-First Quarter 2006, economist Cliff Waldman concludes that growth is not only strengthening but broadening in the key countries of Canada, Japan, and in Latin America as a whole. While growth in all three of these areas had been coming almost exclusively from exports, the recent strengthening of domestic demand bodes well for the sustainability of the global recovery.
However, Waldman expresses continuing concerns about persistently sluggish growth in the Eurozone as well as the overheated Chinese economy. According to Waldman, both create negative risks for the near-term global outlook. Although recent data do show modest improvement, moribund domestic demand in the three largest Eurozone countries of Germany, France, and Italy is a continuing concern. In China, overextended domestic credit and runaway activity in fixed investment have created legitimate concerns about unsustainable economic growth.
On balance, Waldman expects annualized growth in the industrialized countries as a whole to slow from a projected 2.7 percent in the second quarter of 2004 to 2.3 percent in the fourth quarter of 2004 before picking up to 2.9 percent in the second quarter of 2005. Growth in the developing countries such as China, India, Poland, and Brazil is expected to slow from a predicted 5.2 percent in the second quarter of 2004 to 3.9 percent in the second quarter of 2005 and then recover to 4.7 percent by the first quarter of 2006.
The report projects that the dollar will be flat against the industrial countries' currencies in the second and third quarters of 2004. Subsequently, the dollar is expected to decline between 5 percent and 7 percent in each of the three quarters between the fourth quarter of 2004 and the second quarter of 2005 as the transition to higher interest rates focuses financial market attention on the burgeoning trade deficit and on the need for a still lower dollar to sustain the U.S. export recovery. The Alliance expects a very modest 0.5 percent to 1.0 percent appreciation of the dollar against developing countries' currencies through the first quarter of 2005 and then flat activity through the first quarter of 2006.
Capital goods exports, excluding autos, are projected to show the greatest strength, growing by 19 percent on an annualized basis in the second quarter of 2004 and between 25 percent and 30 percent through the end of 2005. Consumer goods exports, excluding autos, are expected to grow at more modest rates of between 10 percent and 20 percent during this period, while vehicle exports are expected to be positive but volatile with growth ranging between 3 percent and 18 percent through the first quarter of 2006.
'While, on balance, the global economic picture is brightening, the risks generated by the investment bubble in China and persistent sub-par growth in the Eurozone suggest some uncertainty for industrialized and developing country growth for the balance of 2004,' Waldman said. 'Nonetheless, the broad recovery of global demand from the 2000-2003 recessions and the depreciation of the dollar since February 2002 will keep export growth on a positive and strong path through the first quarter of 2006.'
More information on the report ($25) is at www.mapi.net.