Economists see soft landing for world economy

Economists’ expectations for the global economy have dimmed slightly in the fourth quarter of 2006, according to the latest ICC/Ifo World Economic Survey, released today.

The quarterly report also registered mounting concerns over the collapse of the Doha trade talks by the group of 1,060 economic experts in 89 countries.
For the second quarter in a row, the overall index declined while expectations brightened on the current economic situation. The world economic climate index registered 104.7 for the fourth quarter, a minimal 0.9 point drop from 105.6 in the previous quarter.

“Once again, the decline was due solely to a drop in confidence for the world economy in the next six months,” said Hans-Werner Sinn, President of the Ifo Institute for Economic Research at the University of Munich. ”In contrast, assessments of the current economic situation have improved for the fifth consecutive quarter and now stand at a six-year high.”

Mr Sinn said the data suggest any expected slowdown in world economic growth will be only a moderate cooling in the next six months.
While the index fell slightly in North America, for the first time in three years it is below the long-term average. While the assessments of the current situation have worsened in the US and Canada, the six-month outlook for the US has been revised upward somewhat and is only slightly negative. Prospects for economic activity in Asia picked up, reversing a downward trend over the last two quarters.

In Western Europe, the overall economic climate index slipped, but assessments of the current situation continued to improve, approaching the all-time high seen in 2000. In Eastern Europe, expectations remain unchanged. “Since early 2005, markets in Eastern Europe have been on a stabilization course and this positive trend continued in 2006,” the survey said.

Expectations for an upward pressure on prices for 2006 continued, but were pegged at a more moderate increase: global inflation was seen at 3.6%, up from 3.5% in the last quarterly survey. Inflation is expected to rise most in Latin America to 5.7% from 4.9% last quarter. In the euro area, inflation is seen stable with slight declines expected in Asia and North America.

Currency evaluations remained consistent with the last quarter. The US dollar is viewed as fairly valued, the euro and the British pound are considered overvalued and the Japanese yen is seen as undervalued.

The rise in both short- and long-term interest rates is expected to moderate worldwide.

Economists worried about Doha trade round stalemate
Following the July 2006 suspension of the World Trade Organization’s Doha trade round, experts were asked a special question regarding their level of concern and interpretation of the consequences of this impasse. The vast majority of economists surveyed – more than 70% – noted they were “concerned” or “extremely concerned” about the breakdown in negotiations.

Perceptions varied among countries and regions of the likely consequences from a suspension in the global trade talks. Economists anticipated more bilateral agreements and a rise in protectionism in Asia and Latin America and greater protectionism in Western Europe and North America.

Economists in Central and Eastern Europe, Australia, New Zealand and South Africa foresee a loss of export opportunities as their greatest concern.

“The international trade system will face a period of rising protectionism and a resulting loss of export opportunities worldwide. Prospects have become clouded for global economic growth, particularly in the least developed countries,” Mr Sinn said.