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MAPI: Rising Energy Costs Create Inflation Concern

Report says jump in crude oil prices and rising raw materials costs are key issues for the 2008 global economic outlook.

ARLINGTON, Va. -- Surging energy prices and high food and raw materials costs are creating a global inflation concern, complicating the world outlook amid continuing worries about the U.S. economy, according to a report by the Manufacturers Alliance/MAPI.

Economist Cliff Waldman notes that strong export demand has buffered the U.S. economy and has been the primary reason a significant recession has yet to occur.

“While U.S. data have been modestly above expectations, the risk of an imminent downturn remains and the U.S. financial system is still grappling with significant structural issues,” Waldman said. “Over the near term, U.S. troubles will continue to impact the growth outlook for key trading partners as well as the stability of global financial markets.”

MAPI expects growth of total U.S. goods and services export demand to accelerate from 8.1 percent in 2007 to 8.3 percent in 2008, before accelerating to 9.7 percent in 2009.

Gross domestic product (GDP) growth in non-U.S. industrialized countries will grow by 1.8 percent during the third and fourth quarters of 2008 before slowing to 1.7 percent in the first half of 2009. Growth should accelerate to 2.1 percent during the second half of 2009.

Due to weaker growth in India and the expectation of a slowdown in China, developing country aggregate GDP growth will slow from 5.2 percent in the third and fourth quarters of 2008 to 5.1 percent in the first half of 2009. Growth is expected to decelerate to 5 percent during the third quarter of 2009 and to 4.9 percent during the fourth quarter.

The dollar should continue its depreciation against industrialized and developing country currencies through the balance of 2008 and 2009.

Waldman expects the dollar will decline by 3 percent on a compound annual basis against currencies of industrialized trading partners during the third and fourth quarters of 2008 and in the first quarter of 2009. The dollar depreciation will slow to 2 percent during the second and third quarters of 2009 before a flat performance during the fourth quarter of 2009.

Against currencies of developing countries, MAPI expects a decline of 10 percent during the third quarter of 2008 and then a 7 percent decline during the fourth quarter of 2008 and the first quarter of 2009, before declining to 5 percent for the rest of 2009.

“Persistent weakness and continued downside risks for the U.S. economy likely mean that the dollar will continue on a path of depreciation well into 2009,” Waldman added.

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