Global economy still on a roll, economists say

Economists expect even stronger economic growth in the second half of the year than during the current period. But they noted there are significant regional and country-by-country variations in economic outlooks, with a slowing US economy the dark cloud on the horizon.

The Ifo World Economic Climate Index was unchanged this quarter at 106.5, well above the long-term average. The report surveyed 1,024 economic experts in 91 countries.

“Although the rest of the world is not as dependent on the US economic growth as it was a decade ago and all large regions of the world economy are in relatively good health, negative spillovers may curb the exceptional economic growth rates seen in the past two years,” said Hans-Werner Sinn, President of the Ifo Institute for Economic Research.

Economists surveyed downgraded their outlooks for the US for the current quarter and the remainder of the year. In Western Europe, the economists expressed raised expectations for the next six months and maintained their prognosis for the present period, with strong current showings for Germany and the Netherlands but reduced assessments for the UK and Switzerland in the second half. In Asia, economists expect the Japanese economy to stabilize in the latter half of the year and see a cooling off period emerging for the economy in Hong Kong. China’s economy is expected to remain buoyant, as increased consumer spending and more exports offset slower capital investment.

Experts foresee a slight increase in global inflation at 3.8% for 2007, 0.2 point more than the previous estimate, with inflationary pressures centered on North America. Forecasts for US inflation are now 2.9%, up from 2.5%.

In the current poll, economists were asked an extra question on the outlook for the US dollar for the coming six months. Overall, they expect the currency to continue weakening. The Japanese yen was viewed in the current survey as undervalued while the Euro and the British pound were seen as slightly overvalued.

Deep concern over investment protectionism

The survey also asked a special question about the rising tide of investment protectionism, as many governments block cross-border investment for reasons of national security or protecting strategic sectors. In all regions, a majority of economists said they were very concerned about an upswing in international investment protectionism. Most said protectionism leads to erosion of national and global investment outlooks, increased costs and a decline in competitiveness.

ICC strongly believes that cross-border investment is essential to sustaining prosperity in developed and developing countries. While governments of all sovereign nations reserve the right to regulate, it is critical that they do so in a manner that does not discriminate against or impede foreign investment out of protectionist motivation. Some governments have clearly gone too far in recent years, including governments that will be represented at the G8 next month. ICC urges governments in developed and developing countries to avoid investment protectionism and to welcome market-driven foreign investment.

“Our goal is to work with governments to reverse the trend toward investment protectionism, before it spreads to other parts of the world and starts to affect global investment flows in a big way,” said Guy Sebban, ICC Secretary General.

The quarterly Ifo World Economic Survey is conducted in cooperation with the International Chamber of Commerce and receives financial support from the European Commission.