During the recent wave of economic forecasts opining on what the landscape of 2008 will look like, one comment stands out above the rest.
Combine a recession in the United States, economic growth in Europe slowing to 1 percent, and growth in China falling to 5 percent (which would be a “hard landing” there) and, said Global Insight chief economist Nariman Behravesh on Dec. 11 during Global Insight's 2008 forecast, a scary picture emerges.
“The combination of those would be enough to push the global economy into recession,” Behravesh said.
Behravesh estimates the chances for economic slowdown in China (where the government has pushed to rein in easy credit conditions) after the summer Olympics at one-third.
The only regions of the world where Global Insight does not anticipate an economic slowdown are North Africa and the Middle East, due to oil reserves and a booming oil economy in the regions.
Global economic problems could spell doom for the U.S. economy if it doesn't tip into recession before then because, as Nigel Gault, group managing director for Global Insight, said in his company's forecast, “We're looking for the rest of the world to prop up growth in the U.S.”
The United States will be reliant on economic growth elsewhere because its own economic growth is slowing. Economists are projecting decreasing job growth, increasing unemployment, and decreasing consumer spending for the U.S. in 2008.
“The unemployment rate, we expect to rise to over 5 percent [in 2008],” Gault said. The unemployment rate after November was 4.7 percent, according to the Bureau of Labor Statistics.
With a wave of foreclosures expected in 2008 due to resetting adjustable rate mortgages, job losses could spark another flood of foreclosures beyond that, said Mark Zandi, chief economist for Moody's Economy.com, during his 2008 forecast.
“Then the impact on defaults and foreclosures will show up later in 2008, into 2009, and perhaps into the early part of the next decade,” he said.