World to weather US slowdown

NEW YORK – The global economy will mostly withstand an expected slowdown in the United States in 2008, Merrill Lynch forecast in a report released on Tuesday.

“We remain optimistic that the global economy remains resilient in the face of a US slowdown,” Merrill Lynch’s global economics team wrote in a research report titled ‘2008: The global macro year ahead’ and dated November 28. US economic growth will slow to 1,4 per cent in 2008 from 2,2 per cent this year, while the rest of the global economy will decelerate to an expansion of 5,6 per cent in 2008 from 6,0 per cent this year, Merrill forecast.The report acknowledged recession risks in consumer spending, which accounts for roughly two thirds of US economic growth.”In the US, the consumer is on the precipice of its first recessionary phase since 1991, the last time we had high energy prices, weakening employment conditions, real estate deflation and tightening credit,” the report said.Economic recovery in the United States should take hold in late 2008, while the Federal Reserve should cut interest rates to two per cent by mid-2009, Merrill wrote.The Fed has cut its benchmark rate for short-term lending, the fed funds target rate, by 75 basis points since mid-September.That rate now stands at 4,50 per cent and most market analysts expect the Fed to cut the target by at least 25 basis points at its December 11 policy-setting meeting.Merrill Lynch expects one big contributor to global economic growth next year will be China, whose economy is forecast to expand by 10,9 per cent in 2008, decelerating slightly from 11,5 per cent in 2007.Export-oriented US companies selling goods to faster growing markets are likely to outperform, the note said.”The silver lining in the cloud is the export sector,” the report said.As the dollar has weakened, US exports have become more competitive and have contributed more to US economic growth this year.The Merrill report said the short term risk of a US dollar crisis has risen, “as evidence mounts that financial market turmoil has primarily hit the US economy while other parts of the world have remained resilient,” and “particularly since the US current account deficit is exclusively financed by fixed income securities and heavy central bank intervention.”Japan and China regularly purchase dollars to curb their respective currencies’ rise against the US dollar and are the two biggest foreign holders of dollar-denominated Treasury securities.Nampa-ReutersUS economic growth will slow to 1,4 per cent in 2008 from 2,2 per cent this year, while the rest of the global economy will decelerate to an expansion of 5,6 per cent in 2008 from 6,0 per cent this year, Merrill forecast.The report acknowledged recession risks in consumer spending, which accounts for roughly two thirds of US economic growth.”In the US, the consumer is on the precipice of its first recessionary phase since 1991, the last time we had high energy prices, weakening employment conditions, real estate deflation and tightening credit,” the report said.Economic recovery in the United States should take hold in late 2008, while the Federal Reserve should cut interest rates to two per cent by mid-2009, Merrill wrote.The Fed has cut its benchmark rate for short-term lending, the fed funds target rate, by 75 basis points since mid-September.That rate now stands at 4,50 per cent and most market analysts expect the Fed to cut the target by at least 25 basis points at its December 11 policy-setting meeting.Merrill Lynch expects one big contributor to global economic growth next year will be China, whose economy is forecast to expand by 10,9 per cent in 2008, decelerating slightly from 11,5 per cent in 2007.Export-oriented US companies selling goods to faster growing markets are likely to outperform, the note said.”The silver lining in the cloud is the export sector,” the report said.As the dollar has weakened, US exports have become more competitive and have contributed more to US economic growth this year.The Merrill report said the short term risk of a US dollar crisis has risen, “as evidence mounts that financial market turmoil has primarily hit the US economy while other parts of the world have remained resilient,” and “particularly since the US current account deficit is exclusively financed by fixed income securities and heavy central bank intervention.”Japan and China regularly purchase dollars to curb their respective currencies’ rise against the US dollar and are the two biggest foreign holders of dollar-denominated Treasury securities.Nampa-Reuters