Continual credit market tensions and highly elevated oil prices should contribute to a slowdown in the global economy in 2008 but a recession in the US is likely to be avoided, according to the latest forecasts from the Washington-based Institute of International Finance (IIF), the leading global association of financial institutions.
Growth in the leading industrial economies is projected to be 2.1% this year, down from 2.4% in 2007, while growth in emerging market economies is projected to be 6.9% following 7.3% last year. The IIF forecasts that economic activity in the US in the next few months will be quite weak with growth expected to average less than 1% in the first half, followed by a recovery with second half growth in excess of 3%, averaging 2.3% for 2008, the same as for 2007.
The IIF forecasts that global gross domestic product (GDP) growth is expected to be 3.1% this year, down from 3.5% in 2007 and 3.8% in 2006. Eurozone real GDP growth is expected to slow to 2.1% this year after 2.7% in 2007, while Japan’s growth is expected to slow to 1.3% this year after 1.9% growth last year.
In terms of net private capital flows to emerging markets, the total volume for 2007 is estimated at $681bn while capital flows for 2008 are projected to be slightly less at $670bn.
McKINSEY GLOBAL INSTITUTE 2008 REPORT:MAPPING GLOBAL CAPITAL MARKETS
Europe’s financial markets collectively are approaching the scale of the US market, according to the latest annual analysis of global capital markets trends by McKinsey Global Institute (MGI). The trend is not expected to be significantly altered by last year’s credit market turbulence in the US and Europe. Focused on complete 2006 market data, Europe’s financial markets, including the UK, reached $53,200bn – still less than the US total of $56,100bn in assets – but were growing faster. Three-quarters of the gain came from the deepening of Europe’s equity and private debt markets.
The eurozone’s financial markets reached $37,600bn, the UK markets $10,000bn and other western European nations $5600bn. MGI reported: “The euro is emerging as a rival to the dollar as the world’s global reserve currency, reflecting in part the growing vibrancy and depth of Europe’s financial markets.”
In Asia, the value of China’s domestic financial assets increased by 44% in 2006 and grew more in absolute terms than the assets of any country other than the US. Japan’s short-lived financial recovery ground to a halt in 2006, with total financial assets flat. The financial markets of the rest of Asia combined grew to $18,800bn, just shy of Japan’s $19,500bn.
