Global expansion continues, while fears of a financial crisis grow


“The global expansion will remain on track over the next 18 months, with a reacceleration in growth in the US offsetting some moderation in growth abroad.” says chief economist of Mesirow Financial.

“As a result, global inflation is expected to remain relatively well-contained, central banks are expected to tighten (but not by much), long-term interest rates are expected to drift modestly higher and the bull run in world equity markets is expected to continue,” says Diane Swonk, chief economist of Mesirow Financial, in her July issue of Themes on the Economy.

“Concerns about asset bubbles and a financial market crisis are also high on the medium-term list of risks. A lack of global cooperation, on everything from the situation in the Middle East to monetary policy, could undermine our ability to stabilize financial markets should a crisis arise. This is nothing to say of the chaos that would ensue if the US pulled out of Iraq, especially if Iran and Syria are not on our side when it occurs,” notes Swonk.

In her July newsletter, Swonk highlights topics discussed by worldwide economists who attended the 2007 International Conference of Commercial Bank Economists, July 4-7 in Madrid, which include:
The newest four members of the European Union-Poland, Hungary, Slovakia and the Czech Republic - are largely benefiting from membership in the EU. Their exports are growing at double-digit rate. Japan's economy continues to stabilize and is expected to post its longest period of expansion since the collapse of the “bubble economy” in the late 1980s.

China is expected to hold on to double-digit growth rates, despite efforts by Chinese authorities to slow things. India is catching up to China in growth rates, but is still well behind in its move toward a more market-oriented economy. Latin America remains on a fairly solid growth track, aided by the ongoing boom in commodity prices. Near-Term Risks - Political instability in Africa has raised the risk premium on the price of oil, and could push prices up further in the months ahead. - A hike in taxes on private equity and hedge fund profits could further undermine the US's lead in financial services and push more financial services businesses abroad.

Medium-Term Risks - The US economy is widely expected to experience some sort of a recession during the next President's term, which will further muddy the outlook for American politics and dampen growth outside the US as well. - A short-fall of business investment in both the US and Europe could ultimately undermine productivity growth, which would exacerbate the costs associated with an aging population.

“The global economy appears to be rolling along, despite some obvious obstacles. Risks of a major slowdown are significantly higher in the medium term than in the near term. Or, as one of the ICCBE's more seasoned members, Bob Dederick, put it ' ... cheerfully, ICCBE members see further solid progress over the next 18 months, which can be an eternity for economic forecasters,'” concluded Swonk. (

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