Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (18395)	12/12/2004 1:57:57 AM
From: mishedlo	Respond to of 116555

The World Economy: Headed for a Slowdown or a Slump? by Nariman Behravesh For some months now, Global Insight has been predicting that world growth would peak this year and decelerate in 2005. The pace of this slowdown is being set by the United States and China, where monetary policy is gradually becoming tighter and, in the case of the United States, fiscal stimulus has come to an end. However, this "downshift" in the global economy has been more pronounced than we had originally predicted, mostly because of higher oil prices. Moreover, there is growing concern that faltering growth in some industrialized economies—Germany, France, Japan—in the third quarter could be the start of a more problematic downturn. Nevertheless, in Global Insight's view, a pronounced slump in the world economy is not the most likely scenario. While the U.S. and Chinese economies will slow, growth in these economies will continue at a reasonable pace. Also, the recent fall in oil prices (albeit to historically elevated levels) will reduce the drag on the Global Economy. Thus, we believe that world growth will be sustained at a rate of about 3% next year, compared with 4.2% this year. The U.S. economy is in the midst of a deceleration that will take year-over-year real GDP growth from 5.0% at the start of 2004 to 3.0% by the end of 2005. Rising interest rates, strained household finances, the end of tax cuts, and persistently high energy costs are now restraining economic growth. Inventory investment, a swing factor in any business cycle, has fully recovered and will no longer support the expansion. On the positive side, the pick-up in job growth, coupled with double-digit gains in capital spending, suggest that businesses have gained confidence in the expansion's sustainability. The forecast calls also for gradual improvement in real net exports beginning in early 2005, in response to the dollar's depreciation and continued growth in the rest of the world. Eurozone growth slowed to 0.3% quarter on quarter (q/q) in the third quarter of this year, according to Eurostat's "flash" estimate. This was down from growth of 0.5% q/q in the second quarter and 0.7% q/q in the first. No details are available yet of the third-quarter GDP components; however, it is probable that Eurozone exports came under increasing pressure from softer global growth, while domestic demand across the region was not strong enough to compensate for this. We currently project Eurozone GDP growth moderating from 1.9% in 2004 to 1.8% in 2005. Furthermore, the risks seem skewed to the downside; and we could well revise down the 2005 projection closer to 1.5%. Japan's economy has slowed dramatically in recent months. After posting high single-digit growth in late 2003 and early 2004, seasonally-adjusted GDP increased at annual rates of only 1.1% in the second quarter and 0.3% in the third. Much of this slowdown is a reflection of export performance. Encouragingly, consumer spending has been the one bright spot during the slowdown: real private consumption has continued to grow at 3-4% rates, despite the deceleration in the industrial sector. This should help Japanese growth rebound. Growth in China has slowed slightly since mid-2004: real GDP rose 9.1% in the third quarter, down from 9.6% in the second quarter. This modest slowdown was mainly due to cooling investment growth—from 43.0% in the first quarter 2004 to 27.7% at the end of the third. Other developments since mid-year have, for the most part, been consistent with the trends in the first half. Exports have remained hot. Household demand has remained steady. And liquidity growth has continued to decelerate sharply, which is an extremely encouraging sign for a soft landing. globalinsight.com