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In the report, economist Cliff Waldman concludes that the renewed risks that the global economy is facing are a continuation of the historic period of crisis that began with the collapse of the U.S. housing market in 2006 and 2007.
"That event revealed an underlying financial structure that can only be described as an accident waiting to happen, with unjustified and unsustainable leverage, off-balance sheet transactions, and counter-party risks that nearly toppled the U.S. financial system," Waldman said. "In what now appears to be a new phase of crisis, public finances are the subject of fear. The sovereign debt drama that began in the southern periphery of the Eurozone has grown in ways that have unnerved global financial markets."
Gross domestic product (GDP) growth in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom, and Sweden), and Japan, is expected to be only 2 percent by the end of 2012, when even in a moderate recovery the 3 percent to 4 percent range would be considered "normal."
Signs of slowing have become apparent in many developing economies and they are not immune from the troubles of their rich nation trading partners. MAPI's forecast sees a compound annual GDP growth rate in these countries of only 4.7 percent by the fourth quarter of 2012, when growth between 5 percent and 6 percent would be more typical.
Slow U.S. domestic demand and weak global growth are expected to take their toll on U.S. export and import demand. Annual U.S. export growth is predicted to slow from 11.3 percent during 2010 to 8.1 percent during 2011 and then further to 7.7 percent in 2012. The slowdown in U.S. import growth is anticipated to be even more pronounced, dropping from 12.5 percent in 2010 to 5.1 percent in 2011 and to 3.1 percent in 2012.
"If there is one glimmer of light in an otherwise weak global picture, it is the benefit of a sharper slowdown in import growth than export growth," Waldman said. "We expect the current account deficit as a percent of GDP to fall from 3.2 percent in 2010 to 2.6 percent by 2012. A rebalancing of current accounts on a global scale is one necessary ingredient for an intermediate and long-term resumption of global stability."