The 2020 Mid-Year Economic Update_long

Global Growth Outlook

2006, experience a 0.5 percent gain during the fourth quarter, and then a 1.5 percent gain through the first and second quarters of 2007.


As China allows for more currency flexibility and as the new Mexican government builds credibility in the wake of a tense post-election period, MAPI expects the dollar to fall modestly by 2 percent through the third and fourth quarters of 2007 and by 5 percent during the first half of 2008. The dollar is then expected to stage a modest recovery of 2 percent during the last half of 2008.


A weaker dollar and surprisingly strong global growth are expected to result in an acceleration of U.S. export growth in 2006. Export growth is predicted to be relatively unchanged during 2007, as the impact of a weaker dollar is muted by lower growth rates in industrialized and developing countries.


The strong pace of global growth continues to surprise even the most optimistic of forecasters, and perhaps rightfully so, according to a quarterly report from the Manufacturers Alliance/MAPI.


The recent and unexpected acceleration of growth in China, continued strength in other emerging market regions such as India, positive momentum in the Eurozone, and moderate but firm domestic demand in Japan have for the moment trumped concerns about a slowing U.S. economy to raise expectations for global output performance during 2006 and 2007.


In the MAPI Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar: Third Quarter 2006 Through Fourth Quarter 2008, economist Cliff Waldman asserts that a more balanced output scenario among a cross-section of worldwide markets makes this strong outlook plausible and likely able to withstand any anticipated softening of the U.S. economy.


A weaker dollar and surprisingly strong global growth are expected to result in an acceleration of U.S. export growth from 6.8 percent during 2005 to 8.6 percent in 2006. Export growth is predicted to be relatively unchanged during 2007, decelerating by only 0.1 percentage points to 8.5 percent, as the stimulative impact of a weaker dollar is muted by lower growth rates in the industrialized and developing countries.


Growth in the industrialized countries, which includes Canada, the Eurozone (which also includes Denmark, the United Kingdom, and Sweden) and Japan will likely slow from an estimated 2.7 percent during the third quarter of 2006 to bottom at 2.2 percent during the first quarter of 2007, before accelerating to 3 percent by the fourth quarter of 2007 and 3.2 percent during the first half of 2008.


The non-U.S. industrial country growth rate is then expected to moderate to 3.0 percent during the second half of 2008.


Growth in the developing countries, which includes China, India, Latin America, Mexico, and the Pacific Rim (excluding Japan) is expected to slow from an estimated 5.5 percent during the third quarter of 2006 to 4.9 percent during the last three quarters of 2007 and 4.5 percent during the first half of 2008.


Growth is subsequently expected to accelerate to an average of 5.0 percent during the second half of 2008.


Less reliance on U.S. and Chinese growth is a healthy development that contributes to a positive outlook and should allow for moderate to strong global growth for at least the next few years,” Waldman said.


Waldman writes that the Eurozone acceleration and Japanese revival, as well as growing fears of a U.S. slowdown and uncertainties regarding the near-term policy behavior of the major central banks, creates a murky outlook for the U.S. dollar. MAPI expects the dollar to fall by 4 percent against the currencies of the industrialized countries during the third quarter of 2006, followed by a 3 percent gain during the fourth quarter of 2006, before becoming flat in the first quarter of 2007, reflecting the belief that dollar depreciations are episodic and seldom smooth.


As the U.S. economy slows and global monetary policy continues to tighten, MAPI projects a 7 percent decline in the dollar during the second and third quarters of 2007, followed by a 3 percent decline in the subsequent two quarters.


After a flat performance during the second quarter of 2008, the report predicts the dollar to decline by 3 percent during the third quarter followed by an additional 4 percent decline in the fourth quarter of 2008.


Against the developing country currencies, the dollar is expected to remain flat during the third quarter of

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