The forecast of the IEE # 4 (60). Economic dynamics of global economy in 2007

Reduction of rates of growth of the world gross product (WGP) both in 2006, and in 2007 is practically predicted by all leading international financial and expert organizations. In a set of the basic macroeconomic regions (the USA, the Eurozone, Asia) the real picture meets these forecasts.

 The World bank predicted reduction of WGP in 2006 up to 3,9 and 3,2 % in 2007, Moody’s expects reduction in 2007 up to 3 %; Global Insight as well as the World bank, consider, that in 2006 growth rates have constituted 3,9 %, but they look at the prospects of 2007 - 3,3 % a little bit more optimistically.

 THE USA

By Moody s’estimations, the growth of gross domestic product of the USA in 2006 has constituted 3, 3 %. For economists the basic anxiety causes the fact of cooling the market of the real estate and the finances of large corporations, especially leading triplet of a car industry. Above all things these negative tendencies they connect with a high interest rate on federal funds (5, 25 %) that involves growth of interest on the mortgage and increases costs of investors on the long-term credit. It is expected, that in 2007 rates of increase of economy in the USA will be low, approximately at a level of 2, 1-2, 6 %.

FRS in 2006 increased a rate of discount. It is expected, that in 2007 it will start to lower it, having sustained some time in the first half-year.

 EUROZONE

According to the forecasts of the European commission, the growth of gross domestic product in eurozone on results of 2006 should reach 2, 6 %. In 2007 economic growth rate will decrease to 2, 1 %. By an important stimulus to the acceleration of growth of the European economy was the growth of investment in permanent assets. There is an opinion, that by this stimulus became extension in gap between rates of discount of  ECB (3,5 %) and FRS (5,25 %), leading to relative reduction in price of money of EU as compared to the USA (not to confuse to dynamics of rates in pair euro/dollar) that has had a stimulating  effect on activity of corporate sector. To this positive factor it is also necessary to apply the reduction of transaction costs in eurozone as a result of action of the single currency of euro, and also great volumes of merges and absorption. Less optimistical estimation of growth of gross domestic product in eurozone for 2006 give the World bank and the International monetary fund - 2, 4 %. Their estimation of growth of economy of eurozone for 2007 is even more modest - 1,9-2,0 %.

 The European Central bank within 2006 raised the discount rate. In 2007 it is expected its raise as the head of ECB, Trishe is constantly disturbed by inflationary expectations.

 ASIA

 The Asian macroregion develops ambiguously. The attention in this region attract first of all Japan, China, India. The greatest risks here are the record-breaking sums of first line reserves. For the whole region the sum is about $2, 8 trillion from which about two trillion dollars are first line reserves of China and Japan. To risks of the Asian macroregion it is possible to refer a huge record-breaking national debt of Japan which is the greatest among the developed countries of the world - 160 % from a gross domestic product of this country.

Rates of growth of economy of Japan decreased during 2006, having punched a two-percentage line to significance less than 1 %. And only in IV quarter the small positive gain up to 2, 2 % has been noted. Its growth rates indicate rather that the economy is still balancing on the verge of stagnation. However according to the indicator of monetary tools (the rate of discount of central bank of Japan made up 0, 1 % and only in the second half of 2006 it has been raised up to 0, 25 %) with the factor of monetization, exceeding 100 % of gross domestic product, it is possible to state, that economy of Japan is the world leader in innovation. An explanation to this fact is simple: at a low course of exchange without a high innovation the national economy cannot stand a long time, not exporting resources. Resources remain in national economy if they are directed to creation of innovative production which forces them out from export.

 By the positive factor of its economy, in spite of closeness to stagnation, is dynamical growth of profits of corporations of hi-tech production and first of all car industry which in 2006 dynamically seized the markets of northern America. One of the main reasons of these is a "soft" monetary banking policy of Japan. Since 2001 it stimulated economic growth due to change of volume of obligatory reservation of funds of commercial banks. This measure has been directed to regulation of liquidity of financial system and a money supply in the country.

Rate of unemployment and inflations of this country is one of the best in the world among countries of G7 and ОECD: 4 and 1,5 %, accordingly. Thus, despite of a considerable raise in prices for energy carriers, base and volatile indexes of consumer price do not differ much from each other; vary within the limits of a difference between them in 1 %. The gain of inflation at the end of the year in Japan has constituted 0, 2 %.

CHINA AND INDIA

 China and India, unlike Japan, have demonstrated very high growth rates in 2006. Rates of increase of gross domestic product in 2006 there were 10, 4 and 8, 7 %, accordingly. Thus both in China, and in India, despite of fears of the governments of these countries, economy is far from overheating. Their inflation has made up 2 and 5 %, accordingly. At this point, however, similarity comes to an end. In spite of raise in rate of reservation and credit rates in 2006, the central bank of China carries out softer monetary policy, than Indian. It is expressed in a big positive net of a current account of the balance of payments of China's bank. As a result first line reserves of the People's bank of China have made up a fantastic size in 2006 - $1, 1 trillion. The balance of payments reduces Central bank of India, having negative balance on a current account.

 In 2007 many experts expect toughening monetary policy of China and according to this they predict decrease in growth rates of its economy to 9-9, 5 %. By huge rates in economy of China the motor- car industry grows, on this parameter China has confidently taken the second place in the world, having bypassed Japan.

 WORLD ECONOMY

 The world economy in 2006 has slowed down growth rates, and this slowdown passes to 2007. Predicted slowdown became the reason of simultaneous toughening of monetary policy by leading central banks of the world in May-June 2006. It was one of the fundamental factors which have shown resolute influence (see "Chief financial officer, 7, 2006 article “Spurs and a bridle for Golden calf”) on world economic dynamics. It has introduced a new intrigue in game at the world markets, both resources, and ready hi-tech production. The second fundamental factor which by all means will influence world economic dynamics is always the same petroleum.

 By this time today becomes more obvious, that risks of development of global economy by lesser and lesser extent give way to regulation in joint efforts of tools of economic policy of the countries-leaders. Risk number one in global economy is considered to be double deficiency of economy of the USA (the balance of payments and the federal budget). The greatest fear economists think is caused by negative balance on a current account in the USA and positive in China and in the countries-exporters of petroleum. If crisis arises, it will equalize these disproportions, having painfully struck the economy on the whole. In that case the countries of the Asian macroregion will especially suffer.

Analysts of IMF evaluate probability of slowdown of world growth rates below 3, 25 % in 2007 as 17 %. The Most essential risks for world economy remain an inflationary pressure and a rise in prices for petroleum.

 THE MARKET OF RESOURCES

According to estimation of OPEC resulted in the June report of the organization, in 2006 demand for petroleum at an average will make up 84,6 million barrels a day, having increased during the a year by 1,4 %.

 The situation in the world markets of energy carriers in 2006 developed under effect of growth of demand on them from the side of developing countries, and some other factors, somehow: instability of a political situation in separate extracting regions; discussions about global warming, etc.

 In opinion of analysts of Energy Information Administration of the ministry of power of the USA, the average world prices for petroleum in 2006 were above an equilibrium level. The strong economic growth in the countries, which are key consumers of the given fuel, in aggregate with the other factors raised prices considerably over equilibrium significances. The average price of petroleum of mark WTI in 2006 has reached a mark of $66, 02 for a barrel. Thus in August the nominal price of petroleum of this mark has reached a historical maximum - $77 for a barrel.

 It is necessary to pay a special attention for a high sensitivity of the market of petroleum to changes of dynamics of world economic growth (to dynamics of WGP) and even similar dynamics of separate macroregions. In conditions of the present state of affairs when the world economic system does not possess the developed tools of statistical record keeping of global parameters, using services of corresponding institutes of the international financial organizations and сcountry national statistical-analytical agencies, this regularity can actively be used for the efficient analysis of dynamics of WGP regarding mutual influence of WGP and the world market of power resources.

 In particular, comparing price evolution in the market of petroleum and dynamics of  gain of  gross domestic product of the USA it is easily possible to notice similarity of the presented curves to a time log approximately in six months. In a view of only this fragment of the revealed regularity quite obviously seems the reduction of prices for petroleum after August peak. It is quite possible, that the given regularity can be used as a working hypothesis in the nearest short-term period. Exactly as the working hypothesis, as it is still necessary to consider the reaction of ОPEC to the character of events.

 So, for example, after August reduction of prices for petroleum ОPEC in IV quarter of 2006 has made a decision to reduce the volume of production. By the result of these measures became preservation of an average price of petroleum in this quarter above level of $60 for a barrel (fig. 1). Analysts of IEA consider, that in intermediate term prospect ОPEC will aspire to keep petroleum prices in a range of $50-60 for a barrel (i. e. in the prices of 2005), however the real world prices for petroleum in 2007 will start to decrease smoothly in comparison with average significances of 2006.

Thus, even in a view of the presented fluent analysis it is possible to draw conclusions about influence of discount monetary policy of banks of countries G-7 for world economic dynamics, and through it for the world markets of power resources. Simultaneous increase of rates of discount by leading banks of the world stabilized world inflationary processes, having influenced even on the most powerful and volatile market - the market of petroleum. Simultaneously with this it is necessary to note other consequences of this policy: the world economy has slowed down growth rates of WGP. Exception in this process makes up new developing leaders, especially of Asian macroregion.

Posted on the website: 2007-02-19