Economic growth has slowed down globally and industry projections by several financial services firms and industry associations for year-end 2008 through 2009 have been generally pessimistic. The Machinery and Allied Products Institute (MAPI) Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar for fourth quarter 2008 through fourth quarter 2009 expects the growth of total U.S. goods and services export demand to slow from 8.4 percent in 2008 to 7.3 percent in 2009.

Economist Cliff Wildman writes in the report:

Recent data which show that the U.S. economy may have lapsed into a recession, and that growth in other key industrialized economies has either stalled or contracted, further augments anxieties over the magnitude of the global slowdown. This raises the specter of a more rapid decline in global growth than had been expected and creates concerns about the near-term outlook for U.S. export demand, the principal positive element in the U.S. economic picture during the past year.

Exports have contributed close to 1 percent to the country's economic growth in the last four years. However, the weakening global growth this quarter through early 2009 is expected to slow down the pace of U.S. export growth more than observed in the recent past, according to TD Bank Financial Group's quarterly economic forecast.

Without the improving trade situation, with net export deficit (exports minus imports) adding 2.4 percent to U.S. gross domestic product (GDP) in Q2 of 2008, the U.S. economy would have faced a 0.5 percent contraction, Bloomberg's latest economic growth forecast report says (via GE Commercial Finance).

"The weaker U.S. dollar was clearly a contributing factor to an improving net export situation," the Bloomberg report adds. "Looking ahead, at least for the near-term, a combination of a slowing global growth situation and a stronger U.S. dollar (so far in Q3) will make it more difficult for U.S. export growth."

Indeed, the forecasted drop to 7.3 percent growth in 2009 is significantly less than MAPI's prediction last quarter. TD Bank Financial Group also readjusted its projections for U.S. real GDP in light of the recent financial chaos, lowering GDP in 2009 by 0.1 percentage points to 1.1 percent. In 2010, TD expects the U.S. to be able to begin recovery with the economy growing 3.2 percent, though still below the traditional 4 percent to 5 percent growth that follows extended periods of economic weakness.

Global real GDP growth, on the other hand, is expected to be only slightly below 3.8 percent, forecasts the Peterson Institute for International Economics. The Peterson Institute predicts global growth to decelerate slightly to below 3.5 percent rather than accelerate to 4 percent in 2009. Though the anticipated world GDP growth (on the basis of the International Monetary Fund's World Economic Outlook) will be below the 4.75 percent average annual rate achieved from 2004 through 2007, it will be above the 2.5 percent rate that marks the borderline of global recession.

Contingent upon the recovery of the troubled U.S. economy, MAPI sees other industrialized countries recovering more fully, to 2.1 percent economic growth in the third quarter of 2009 and 1.9 percent in Q4 of 2009. Aggregate developing country growth is forecasted to remain below 5 percent economic growth until the second half of 2009.

Economists are counting on the recent sharp declines in commodity prices to help bring down inflation rates and offer a "ray of hope," Waldman says. "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."

Resources

MAPI Quarterly Report: U.S. Financial Crisis Threatens Already Weakening Global Economy
Machinery and Allied Products Institute, Oct. 10, 2008

TD Quarterly Economic Forecast
TD Bank Financial Group, Sept. 25, 2008

Consensus Forecasts and Market Summary
Data compiled by Bloomberg
GE Commercial Finance, Aug. 20, 2008

Global Economic Prospects: Surviving a Mild Case of Stagflation
by Michael Mussa
Peterson Institute for International Economics, Sept. 26, 2008