Downside Risks to Global Growth
Co-written with other RGE Lead Analysts.
Since the beginning of the year the U.S. economic outlook has been hit by a string of disappointing economic data – IMS manufacturing index, Payroll survey – that has materially increased the odds that the U.S. economy could slip into recession during 2008. Many believe that a U.S. recession is already started and yesterday’s negative retail sales numbers certainly support this view. Take a look at: “U.S. Retail Sales Drop: Holiday Season Does Not Change the Gloomy Outlook for the U.S. Consumer” and “U.S. Economy: Already in Recession?”
But how is the global economy faring?
The outlook on global growth is turning weaker and financial conditions are certainly not supportive of growth. Take a look at: “Global Economic Outlook for 2008: Will the World Economy Withstand the U.S. Sub-prime Fallout?”
In the Eurozone, economic sentiment continued to deteriorate according to the European Commission Business and Consumer Survey. Eurozone GDP growth is expected to be well below the potential rate in 2008. Investor confidence in Germany fell to the lowest in 15 years on concern that a U.S. recession will deepen the slowdown in Europe’s largest economy. In Spain the spectre of housing recession and contracting private consumption are looming on the outlook. Take a look at: “Is the Eurozone Upswing Already Over? Leading Indicators for 2008 Point Towards Slowdown”
According to the World Bank, Asia is also projected to slow down in 2008. Notwithstanding good macro fundamentals and relative small impact from the global financial turmoil – with the exception of Korea – downside risks to growth remain, including a slowdown in exports, an unwinding of carry trades and the impact on equity markets and currencies. Check out: “Asian Economic Outlook for 2008 After a Strong 2007”
The myth that the Chinese dragon can sustain global growth – with its 11% share of global output – seems to be fading. The Chinese authorities might finally be succeeding in putting the brakes on their overheated economy; but it is very bad timing given the weakness for the U.S. and global economy. Read: “Can China Decouple From a US Slowdown?” and “If the US Slows, Can China Keep the Rest of the World Growing?”
And what could be the possible effect of a U.S. recession in Latin America? Concerns that a recession in the world’s biggest economy will curb demand for Latin American emerging-market exports and increase aversion to financial assets are well alive. Take a look at: “Economic Outlook for Latin Countries in 2008” and “Impacts of a U.S. Recession in Latin America in 2008”
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