The crisis of confidence in the American financial system has catalyzed a chain reaction of financial and political events, stunning global investors and creating a magnitude of uncertainty surrounding the near-term global outlook, according to a new report.
In the MAPI Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar: Fourth Quarter 2008 Through Fourth Quarter 2009, economist Cliff Waldman writes that some elements of the mid-September drama were simply steps toward the full and inevitable restructuring of a financial industry that had failed to appreciate and adjust for the systemic risks posed by the securitization mania of the last 20 years or more. But the dramatic elevation of risk aversion has become economically threatening.
Recent data which show that the U.S. economy may have lapsed into a recession, and that growth in other key industrialized economies has either stalled or contracted, further augments anxieties over the magnitude of the global slowdown,”Waldman said. “This raises the specter of a more rapid decline in global growth than had been expected and creates concerns about the near-term outlook for U.S. export demand, the principal positive element in the U.S. economic picture during the past year.”
MAPI expects the growth of total U.S. goods and services export demand to slow from 8.4 percent in 2008 to 7.3 percent in 2009. The latter is significantly below the previous quarterly forecast of 9.7 percent for 2009.
The study notes that major economies such as Germany, Japan, and France slipped into negative growth in the second quarter of 2008.
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 register a tepid 0.6 percent during the fourth quarter of 2008, then accelerate slowly to 1.5 percent during the first quarter of 2009 and 1.7 percent during the second quarter of 2009.
Contingent upon a recovery in the troubled U.S. economy, MAPI forecasts industrialized country growth to recover more fully to 2.1 percent during the third quarter of 2009 and 1.9 percent during the fourth quarter of 2009.
Aggregate developing country growth is expected to remain below 5 percent until the second half of 2009. Specifically, MAPI sees growth slowing from 4.8 percent during the third quarter of 2008 to 4.7 percent during the fourth quarter before accelerating modestly to 4.9 percent during the first and second quarters of 2009 and 5 percent during the last half of the year.
The report questions the sustainability of the current dollar appreciation in that it appears due almost entirely to emerging weakness in key trading partner nations as opposed to any positive economic, financial, or policy signals from the U.S.
Waldman anticipates the dollar will be flat on a compound annual basis against the currencies of industrialized trading partners during the fourth quarter of 2008. It will then resume a moderate slide, with a 3 percent decline during the first and second quarters of 2009, a 1 percent decline during the third quarter, followed by a marginal 2 percent rebound during the fourth quarter of 2009.
In spite of recent mixed activity in the Asian currencies, MAPI forecasts a decline of 5 percent against an aggregate of developing country currencies during the fourth quarter of 2008 and the first quarter of 2009. Thereafter, a decline of 7 percent is anticipated during the second quarter of 2009, and expectations are for a further decline of 2 percent during the second half of 2009.
There remains some positive news in the report as Waldman argues that the fall in commodity prices offer a “ray of hope.”
“Overall, the recent decline of commodity prices and the leveling of both headline and core inflation on a global scale, albeit at less than acceptable levels, is helpful at a stressful and dramatically uncertain time,” he said.
