Economists see more tough times ahead for global economy

  • 20 August 2008

The ICC/Ifo global climate index in July fell for the fourth consecutive quarter in a row since sentiment became downbeat last summer, recording its lowest level since 2001.

The ICC/Ifo world economic climate index for the third quarter, which polled 1025 economic experts in 92 countries, dropped 8.0 points to 73.4 from 81.4.

Sentiment darkened especially in Western Europe and Asia. While economists’ view of the current US economy scored its lowest marks seen in a decade, they slightly raised their expectations for the US economy in the coming six months due to expectations of a pickup in US exports.

The global climate index fell in all major Asian economies. In some of the major economies of Latin America, including Brazil and Mexico, economists also foresee a cooling off period for the second half of the year.

Economists surveyed said the greatest impediment to global economic growth is rising inflation, which they say is further aggravating the cyclical downturn. They estimated worldwide inflation at 5.2%. Economists polled raised their expectations for inflation in each region of the world: 3.8% for the US, a major upgrading in inflationary expectations in Europe to 3.5 %, and pegged inflation at 5.3% in Asia, 9.7% in Latin America, and 14.5% in the CIS states.

Despite expectations for a further weakening in the global economy, economists reversed their previous view on interest rates. In the current survey, economists said they expect a rise in central bank and long-term interest rates.

US$130 oil contributing to economic slowdown

ICC asked a special question in the current survey on the impact of rising oil prices on the global economy and the ability of companies and countries to meet their energy needs.

A large majority of economists said they expect oil prices above US$130 a barrel to create disequilibrium and reinforce recessionary tendencies in the global economy in 2008, and to negatively affect company earnings.

Over the next six months, economists also said that US$130 oil will lead to high current account deficits in many Asian countries, in South Africa, and in several European countries, including Spain, Portugal and Greece.

At the same time, economists saw a silver lining to oil prices at that level: in Western Europe, North America, and major Asian economies, economists expect $130 oil to induce companies to invest in cleaner and more efficient technologies.

The International Chamber of Commerce is the world business organization, a representative body that speaks with authority on behalf of enterprises from all sectors in every part of the world. ICC participates in the quarterly survey with the Ifo Institute for Economic Research and the Center for Economic Studies at Ludwig Maximilian University, both based in Munich, Germany.