An escalating debt crisis in the Eurozone, combined with stagnating U.S. economic growth, now constitutes a clear and present danger to the world economic rebound, according to the Manufacturers Alliance/MAPI Global Outlook -- October 2011 report. Economist Cliff Waldman concludes that the renewed risks that the global economy is facing are a continuation of the historic period of crisis that began with the collapse of the U.S. housing market in 2006 and 2007.
"That event revealed an underlying financial structure that can only be described as an accident waiting to happen, with unjustified and unsustainable leverage, off-balance sheet transactions, and counterparty risks that nearly toppled the U.S. financial system, Waldman said. In what now appears to be a new phase of crisis, public finances are the subject of fear. The sovereign debt drama that began in the southern periphery of the Eurozone has grown in ways that have unnerved global financial markets.
Gross domestic product (GDP) growth in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom, and Sweden), and Japan, is expected to be only 2% by the end of 2012, when even in a moderate recovery the 3% to 4% range would be considered "normal."
Signs of slowing have become apparent in many developing economies and they are not immune from the troubles of their rich nation trading partners. MAPI's forecast sees a compound annual GDP growth rate in these countries of only 4.7% by the fourth quarter of 2012, when growth between 5% and 6% would be more typical.
Slow U.S. domestic demand and weak global growth are expected to take their toll on U.S. export and import demand. Annual U.S. export growth is predicted to slow from 11.3% during 2010 to 8.1% during 2011 and then further to 7.7% in 2012. The slowdown in U.S. import growth is anticipated to be even more pronounced, dropping from 12.5% in 2010 to 5.1% in 2011 and to 3.1% in 2012.
"If there is one glimmer of light in an otherwise weak global picture, it is the benefit of a sharper slowdown in import growth than export growth," Waldman said. "We expect the current account deficit as a percent of GDP to fall from 3.2% in 2010 to 2.6% by 2012. A rebalancing of current accounts on a global scale is one necessary ingredient for an intermediate and long-term resumption of global stability."