Report Puts 2007 Global GDP Below That Of Last Year

Euler Hermes ACI sees worldwide GDP growth dipping to 3.1 percent from 2006’s 3.8 percent.

Euler Hermes ACI, a global trade credit insurer, said in a Wednesday report that worldwide gross domestic product should come in at about 3.1 percent in 2007, down from the 3.8 percent of last year.

By country, the U.S. should see GDP growth of 2.2 percent, down from 3.3 in 2006; Japan’s 1.8 percent projection would be down from 2006’s 2 percent; and the Euro-zone forecast of 1.9 percent growth is down from 2006’s 2.6 percent.

According to the report, commodity prices should remain stable or decrease, helping to control inflation, though energy supply is a continued concern. Interest rates are also expected to be relatively stable. However, changes in monetary policy will bring increased focus to economic policy and government.

While the potential still exists for negotiations in the WTO Doha round, pressure will rise for bilateral trade regardless of the negotiations and despite world trade growth expectations of 7 percent. The global savings imbalance will also remain a critical issue, the report notes.

By geographic region, the report forecast regional growth for Asia to drop to 7.9 percent from the 8.6 percent in 2006, with much of the growth based on U.S. demand. China will seek a better balance between imports and exports, as well as working to prevent a hard economic landing.

Although South Korea’s growth is expected to be around 4 percent, the Association of Southeast Asian Nations should stay above 5 percent. Thailand’s recent military coup and resulting political uncertainty did little to change the area’s growth rate, but additional problems in capital controls or bombings could negatively affect growth, according to the report.

Inflation is in control in the Philippines and Indonesia, but political instability remains a risk. And in India, the 8.5 percent growth rate of 2006 can lead to overheating without corrective action for 2007. The potential civil war in Sri Lanka and concerns over Bangladesh elections also need to be monitored, the report adds.

According to Euler Hermes, in Latin America growth should slip to 3.9 percent from the 4.8 percent in 2006. And while 2006 was a year of elections for Brazil, Mexico, Ecuador, Nicaragua and Venezuela, Argentina is the only major economy in the region with a presidential election in 2007.

Radical policies from leftist leaders in Ecuador, Nicaragua and Venezuela add to the concerns involving Brazil’s disappointing 2006 growth and the election of Mexico’s President Calderon by a slight margin, the report said.

For Central and Eastern Europe, the report sees growth slowing to 5 percent from 6.2 percent in 2006. The 2006 elections in Poland, Ukraine and Slovakia mean less business- and market-friendly governments in the region. That, combined with the lack of stable coalitions in the Czech Republic and Bosnia-Herzegovina, will have little impact with regards to the economy.

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