Tighter global monetary policies, the unwinding of investment excesses, and the moderation that tends to accompany maturing expansions all point to an imminent period of slower growth for the global economy, according to a new quarterly report.
In the MAPI Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar: Second Quarter 2007 Through Fourth Quarter 2008, economist Cliff Waldman concludes that the impact of the housing downturn in the United States and the near-term path of the embryonic investment slowdown in China are the two key variables that will determine the strength and stability of the world economy during 2007 and 2008.  ;
Financial markets have been nervous about the U.S. and Chinese outlook,” he writes, “but most indications point to a soft and stable landing for the world economy.”
The report projects only a modest slowing in the annual growth of total U.S. goods and services exports from 8.9 percent during 2006 to 8.6 percent during 2007, as slower global growth partially offsets the stimulative impact of the weaker dollar.
However, strengthening growth rates in industrialized and developing countries are expected to accelerate the growth of total U.S. export demand to 9.1 percent during 2008.
Growth in non-U.S. industrialized countries, which include Canada, the Eurozone, and Japan, is predicted to be 2.3 percent during the first half of 2007 and to increase to 2.4 percent during the second half.
As an expected strengthening in the U.S. economy takes hold, it should have a significant influence on the pace of growth in other industrialized nations. Consequently, MAPI envisions growth to accelerate to 2.6 percent during the first half of 2008 and to 3 percent during the second half.
The developing country forecast is driven by widely anticipated& mdash; but modest& mdash; slowdowns in China, India, and Mexico. Growth in the developing countries, which include China, India, Latin America, Mexico, and the Pacific Rim (excluding Japan), is projected to be 5.4 percent during the first half of 2007, and then slow to 5.2 percent by the second half. Growth will further slow to 4.9 percent during the first half of 2008 before rebounding to 5.3 percent during the last six months.
“This is somewhat below the peak of recent years, which we have long thought to be unsustainable,” Waldman said.
The path of the U.S. dollar continues to be a source of considerable uncertainty, and the report discusses recent adjustments in the outlook for global current accounts. A number of short-term factors suggests that the dollar should experience further depreciation.
Among them are: the tightening of global monetary policy outside the United States which favors non-U.S. financial markets, and key U.S. trading partners such as the Eurozone and Japan experiencing faster, if somewhat uncertain, growth while America is in the midst of a slowdown.
Waldman predicts the dollar will decline by 5 percent against the currencies of industrialized trading partners during the second and third quarters of 2007, then continue its decline by a more modest 2 percent during the fourth quarter of 2007 and the first quarter of 2008.
The U.S. economy is expected to return to trend growth during 2008 and, as a result, the dollar should remain flat during the second quarter of 2008 before appreciating by 3 percent during the third quarter of 2008 and by 4 percent during the fourth quarter.
The MAPI forecast calls for a modest fall of the dollar versus the currencies of the developing world, declining by 2 percent during the second quarter of 2007 and then by 1 percent during the third and fourth quarters of this year.
After declining by 3 percent during the first and second quarters of 2008, MAPI expects a strengthening U.S. economy to produce a flat performance for the dollar during the second half of 2008.
To order this report, go to mapi.net.
