World Economy Stable in the Face of Risks

Although recent financial difficulties have curtailed global GDP growth estimates for 2008, the Organization for Economic Cooperation and Development (OECD) argues that the US subprime mortgage crisis, slowdowns in worldwide housing markets, and rising energy and commodity prices are all occurring within a generally robust global economy that is benefiting from high employment rates, strong performances by companies and lively international trade, particularly with developing nations. In its October 2007 World Economic Outlook, the International Monetary Fund (IMF) predicts that global GDP growth will be 4.8% in 2008, down from 5.2% in 2007. The IMF also cites developing nations as a driving force behind global economic growth: according to its estimates, GDP in developing nations will grow 7.4%, and 2.2% in developed economies. An August 2007 report by the Economist Intelligence Unit (EIU) projects that global foreign direct investment (FDI) inflows will decline 4.6% between 2007 and 2008, after having increased 10.5% between 2006 and 2007. But FDI inflows to emerging markets are forecasted to decline only 1.3%.

North America

The OECD predicts that US GDP will grow 2.0% in 2008, down from 2.2% in 2007, while the IMF forecasts that US GDP growth will remain at 1.9% for a second year. According to BusinessWeek’s survey of economists, US GDP will increase 2.1% in 2008, down from 2.6% in 2007. A December 2007 survey by the Business Roundtable shows that 35% of the 105 surveyed CEOs expect their companies’ US capital spending to increase over the next six months, 51% expect it to remain the same and 14% expect it to decrease. The EIU forecasts FDI inflows to the US to drop 1.1% from 2007 levels, although the US will still be the leader, by a vast majority, in FDI inflows. According to the OECD, Canadian GDP growth in 2008 is expected to slow to 2.4% from 2.6% in 2007.


The OECD predicts a downturn for the euro area, with 1.9% growth in 2008, down from 2.6% growth in 2007. The IMF forecasts 2.1% growth for countries in the euro area in 2008, down from 2.5% in 2007. Of the three major European economies, the UK is expected to grow the fastest—2.0% in 2008 compared to 3.1% last year, according to the OECD. In addition, France’s GDP is expected to grow 1.8% in 2008, slightly down from 1.9% in 2007, and Germany’s GDP is expected to grow 1.8% in 2008, following 2.6% growth a year ago. The IMF forecasts that the fastest-growing economies in developing Europe in 2008 will be the Slovak Republic with 7.3% projected GDP growth and Lithuania with 6.5% growth.

Latin America

The IMF forecasts GDP growth of 4.3% in 2008 for its “Western Hemisphere” grouping, which includes Latin America and the Caribbean nations. Within this grouping, Brazil is expected to post GDP growth of 4.0% in 2008, down from 4.4% in 2007. The OECD’s forecast for Brazil is slightly higher, with 4.5% growth predicted for 2008, down from 4.8% in 2007. According to an October 2007 United Nations Conference on Trade and Development (UNCTAD) report, Brazil is the most attractive country in Latin America for FDI during the 2007–2009 period. According to the IMF, the two fastest growing Latin American economies for 2008 will be Venezuela and Peru, which are both predicted to grow 6.0% in 2008. The OECD predicts that Mexico will be one of the few gainers in Latin America, growing 3.6% in 2008, up from 3.0% in 2007.


In developing or emerging Asia, which is generally defined as Asia, excluding Australia or Japan, the OECD predicts that the region will grow 8.3% in 2008, down from 9.2% in 2007, while the IMF predicts 8.8% growth in 2008, down from 9.8% in 2007. The Asian Development Bank (ADB) predicts Indian GDP to rise 8.3% in 2008, up from 8.0% in 2007. The UNCTAD report indicates that India is the second most popular economy for FDI inflows for 2007–2009, but the EIU warns that a weak infrastructure and government resistance towards privatization may prevent dramatic FDI increases.


Japanese GDP growth is expected to decline in 2008, according to the IMF, to 1.7%, down from 2.0%. The Bank of Japan’s prediction for GDP growth in fiscal 2008 is 2.0%, up from projected growth of 1.3% for fiscal 2007, which ends March 31. The Bank warned that a worsening economic slowdown in the US or continued high oil prices could bring about turmoil in Japan’s economy. Capital spending by corporations is forecasted to increase 3.3% in fiscal 2008, up from 0.9% growth for the current fiscal year.


The UNCTAD states that China is the most attractive economy for FDI inflows, and the country is predicted to post impressive growth, yet all indicators point to a decline in comparison to 2007. The IMF predicts the largest decline, forecasting 10.0% GDP growth in 2008, down from 11.5%, while the OECD forecasts that Chinese GDP growth will be 10.7% in 2008, down from 11.4% last year. Several reports, including those of the IMF and the OECD, indicate that the Chinese government must institute stronger economic policies, including allowing the yuan to appreciate more rapidly, in order to prevent the economy from overheating.

< | >