Industrialized Economies Stall, But Fall in Commodity Prices Offers a 'Ray of Hope'

New MAPI study issues forecasts

In a report released on Oct. 10, The Manufactures Alliance/MAPI forecasts the growth of total U.S. goods and services export demand to slow from 8.4% in 2008 to 7.3% in 2009. The latter is significantly below the previous quarterly forecast of 9.7% for 2009.

The study notes that major economies such as Germany, Japan, and France slipped into negative growth in the second quarter of 2008.

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 register a tepid 0.6% during the fourth quarter of 2008, then accelerate slowly to 1.5% during the first quarter of 2009 and 1.7% during the second quarter of 2009. Contingent upon a recovery in the troubled U.S. economy, MAPI forecasts industrialized country growth to recover more fully to 2.1% during the third quarter of 2009 and 1.9% during the fourth quarter of 2009.

Aggregate developing country growth is expected to remain below 5% until the second half of 2009. Specifically, MAPI sees growth slowing from 4.8% during the third quarter of 2008 to 4.7% during the fourth quarter before accelerating modestly to 4.9% during the first and second quarters of 2009 and 5% during the last half of the year.

The report questions the sustainability of the current dollar appreciation in that it appears due almost entirely to emerging weakness in key trading partner nations as opposed to any positive economic, financial, or policy signals from the U.S.

MAPI economist Cliff Waldman anticipates the dollar will be flat on a compound annual basis against the currencies of industrialized trading partners during the fourth quarter of 2008. It will then resume a moderate slide, with a 3% decline during the first and second quarters of 2009, a 1% decline during the third quarter, followed by a marginal 2 percent rebound during the fourth quarter of 2009.

In spite of recent mixed activity in the Asian currencies, MAPI forecasts a decline of 5% against an aggregate of developing country currencies during the fourth quarter of 2008 and the first quarter of 2009. Thereafter, a decline of 7% is anticipated during the second quarter of 2009, and expectations are for a further decline of 2% during the second half of 2009.

There remains some positive news in the report as Waldman argues that the fall in commodity prices offer a "ray of hope."

"Overall, the recent decline of commodity prices and the leveling of both headline and core inflation on a global scale, albeit at less than acceptable levels, is helpful at a stressful and dramatically uncertain time," he said.

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