less than a month to conclude the year, the global economy remains on track
for rock-solid growth in 2004. Next
year, however, the growth pace will moderate significantly as the stimulating policies that have boosted the economic
expansion this year are drawing to an end. In addition, the higher oil price will erode purchasing
power, although the latest developments seem to suggest a lower downside
risk from oil than anticipated earlier. This year, all major
economic regions are recovering, with the upturn being most
pronounced in emerging Asia, particularly China.
Among the industrial countries, Japan is now projected to grow
noticeably slower than the United States, when just recently the country was
seen to be the fastest growing industrial economy this year.
However, disappointing economic data have prompted significant
downgrades to the Japanese outlook for this year and next.
The U. S. economy remains burdened with sizeable current account and
public sector deficits, which are sending the US$ tumbling to new lows
against the Euro. The US$
weakening is not welcome news for the Euro Area, which precariously depends
on its external sector to revive the ailing economy. Consequently, the already subdued prospects for the Euro Area are diminishing
further. In contrast, Latin
America continues to be seen increasingly optimistic, as stronger growth in
the export sector spurred by higher commodity prices is feeding through to
increased domestic demand.
account deficit to stay despite weaker dollar
Despite the significant weakening of the US$ observed over the past
month, the forecast for next year’s current account deficit has not
According to this month’s Consensus, the current account deficit
will reach 5.0% of GDP, virtually unchanged from the 5.1% of GDP deficit
estimated for this year.
Obviously, a weaker US$ is seen as insufficient to stem the
imbalance, as the government remains on an excessive spending spree.
In fact, the projections for the fiscal deficit are rising despite
pledges by the Bush administration to rein in government spending.
At 3.2% of GDP, the forecast for next year’s public sector
shortfall is a notch above last month’s projection and only 0.6
percentage points below this year’s estimated fiscal deficit.
Moreover, the American consumer is not showing signs of a weakening
appetite for foreign goods.
grows faster than reported previously as consumption pace accelerates
to preliminary estimates released on 30 November, GDP increased at an
annual rate of 3.9% in the third quarter over the same quarter last year,
which was up from the 3.3% reading for the prior quarter and 0.2
percentage points above last month’s advance estimates for third quarter
The higher growth rate mainly reflected an upward revision to
private consumption, which increased by 5.1% over the same period last
year instead of the previously reported 4.6%.
However, consumption could begin to slow.
In November, employers added only 112,000 jobs, the smallest gain
in four months and well below market expectations of 200,000.
In addition, the Labor Department revised previous estimates for
October and September gains in non-farm payrolls downwards.
The unemployment rate dropped from 5.5% in October to 5.4% in
However, unemployment has hovered at this level since July.
The November report confirms that the U.S. is mired in a jobless
recovery, which ultimately should also feed through to adjustments in
remains jobless but consumer confidence rises again
the resilience of the American consumer is showing no signs of weakening
and in spite of sluggish employment figures, consumer confidence is again
on the rise.
The index of consumer sentiment of the University of Michigan rose
from 91.7 in the October 2004 survey to 92.8 in November, the first rise
following on three consecutive declines.
The expectations index was 85.2 in November, up from 83.8 in
October, but below the 88.1 recorded in November of 2003. While
both indexes remain at positive levels, they also point toward a slowdown
in the overall pace of growth next year compared with 2004.
However, the November survey was affected by high energy prices,
which have had a harsh impact on families’ budgets, especially among
lower income households. While
consumers did not anticipate an additional surge in oil prices, few
consumers expected substantial declines in energy prices in the near
Therefore, the recent sharp decline in oil prices – in the first
seven trading days of December the quote for WTI dropped by 13.4% to
US$ 42.53 per barrel on 9 December - may boost consumer