The risks emanating from the difficult set of circumstances in the U.S. economy have weakened the global outlook, according to the Manufacturers Alliance/MAPI Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar: Fourth Quarter 2007 Through Fourth Quarter 2008.
"As financial and economic growth risks spread beyond U.S. borders, the near-term prospect for strong global growth has weakened significantly," said Manufacturers Alliance/MAPI economist Cliff Waldman.
The report projects a slowdown in the annual growth of total U.S. goods and services exports, from 8.4% during 2006 to 6.8% during 2007. As the dollar depreciation takes hold, total U.S. export growth is forecast to accelerate to 9.1% during 2008. This is the result of a more competitively priced U.S. dollar overcoming weaker growth in industrialized and developing countries, said the report.
Growth in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom, and Sweden), and Japan, is expected to slow from 2.8% on a compound annualized basis during the fourth quarter of 2007 to 2.6% during the first quarter of 2008. A modest slowdown is subsequently expected to 2.5% during the second quarter of 2008 and 2.4% during the second half of the year.
Growth in the developing countries is projected to moderate from 5.2% during the second half of 2007 to 4.8% during the first half of 2008, with a slight acceleration to 4.9% during the last six months.
MAPI predicts that the dollar is in the midst of an extended period of decline.Waldman writes that the dollar will decline by 5% against the currencies of industrialized trading partners during the fourth quarter of 2007. Following that, the dollar is expected to fall by 5% during the first quarter of 2008 and by 3% during the second and third quarters of 2008, but will remain flat in the fourth quarter.
"As the dollar undergoes an extended period of depreciation, trade will be an increasingly positive contributor to U.S. growth," Waldman said. "But, in the short term, the dollar's decline generates inflation risks at home and economic growth risks for the economies of key trading partners."