After two years of anaemic growth the
global economy is set to rebound this year. Moreover, the sentiment
for the strength of this year’s recovery is improving. Led by
increased optimism over the prospects of the U.S. economy, other regions are
also seen more favourably. In particular, non-Japan Asia will
experience yet another year of buoyant growth, provided that fears of the
potential spread of epidemics do not resurface. Japan seems to have
emerged from an ongoing growth slump observed over the past years, as rising
external demand from Asia and the United States provides for the necessary
impetus to rekindle domestic demand. The major European economies, on
the other hand, continue to lag behind in the economic cycle and while a
recovery is likely to take hold this year growth will remain moderate.
Finally, Latin America will rebound with a sizeable economic recovery.
However, the region is unlikely to live up fully to its potential for a
cyclical rebound following three years of weak growth.
growth slows but remains robust
As expected, U.S economic growth trailed off towards the end of the
year compared to the exuberant pace observed in the third quarter but
According to advance estimates released on 30 January by the Bureau
of Economic Analysis (BEA), gross domestic product (GDP) increased at an
annual rate of 4.0% in the fourth quarter over the same quarter in 2002..
While the market had anticipated a slowdown, the scope came
somewhat as a surprise, as the actual outcome was 0.8 percentage points
below expectations of 4.8%.
In the third quarter, the economy had grown 8.2%, the fastest pace
in two decades.
Based on the preliminary numbers, growth for the full year came in
at 3.1%, following on 2.2% growth in 2002.
after buoyant third quarter
The fourth quarter slowdown reflected a deceleration in consumer
In the third quarter, consumer spending had grown a very robust
6.9% in the wake of advance payments of the child tax credit. This
credit had inflated growth of durable consumer goods to 28.0%, a rate that
was clearly unsustainable.
In fact, the third quarter run on consumer durables seems to have
eaten into the consumer appetite for big-ticket items in the fourth
quarter, as growth receded to an anaemic 0.9% in the year-end quarter.
Growth in total consumer spending decelerated to 2.6%, as the
slowdown in non-durable goods and services was less pronounced than in
and external sector also contribute to slowdown
to the deceleration in consumption, lower contributions from investment
and the external sector also played a part in the slowdown.
Gross fixed investment increased at little more than half the pace
registered in the third quarter but still expanded a very respectable
The BEA reported that transportation equipment turned up, but that
other major categories of equipment output did not match their
The net contribution from the external sector to GDP growth
dwindled from 0.80% in the third quarter to 0.19% in the fourth, as
imports grew at a quicker pace than exports.
deficit mushrooms in election-year budget
the larger than expected slowdown in economic growth, the Consensus is
increasingly optimistic about the growth prospects for this year.
The panellists surveyed added 0.3 percentage points to last
month’s forecast, expecting the U.S. economy to expand 4.5%.
This year’s growth will be fuelled by a sizeable fiscal stimulus
ahead of the November elections.
Moreover, the fiscal deficit, which together with the current
account deficit constitutes the weak spot in the U.S. economy, will remain
on the watch list of analysts.
The Bush administration just presented Congress with a US$ 2.4
trillion budget for the next fiscal year, which starts in October.
The budget represents a 3.5% increase over last year’s and
implies a deficit of US$ 521 billion – the highest ever in absolute
terms – or 4.5% of GDP.