U.S. Versus Foreign Economic Growth: 2010 From 2007

September 14, 2009

The latest issue of The Economist publishes results from the September and newest monthly survey of forecasters.  Projected GDP growth in 2010 has been revised higher for a wide cross-section of economies.  Revisions amount to  0.6 percentage points (ppts) for the case of the euro area, 0.5 ppts for the United States, 0.3 ppts for Swtizerland and Canada, 0.2 ppts for Australia, but just 0.1 ppts for Britain.

Combining the new consensus forecasts for growth in 2009 and 2010 with actual results in 2008 yields highly stratified cumulative expected changes in GDP between 2007 and 2010.  Australian growth over the three-year period is seen at 5.0% (that is, 1.6% per annum), followed by marginally positive GDP increases of 0.4% in the United States, 0.4% in Switzerland and 0.3% in Canada, significantly negative growth of 2.2% in Euroland and 2.6% in Great Britain, and extremely negative growth of 4.8% to be experienced by Japan.

There are two lessons to learn from these disparate trends.

  1. The global financial crisis touched all nations but did not impact them in a homogeneous fashion from a quantitative standpoint.
  2. Currency movements were not consistent with a view that relative economic growth is the dominant causal factor.  The United States attracted heavy safe-haven flows when the crisis was most intense.  Moreover, the United States experienced relatively stronger growth.  However, the dollar is now 21.3% weaker against the yen than three years ago — on September 14, 2007, just five weeks after the start of dysfunctional money market behavior — even though Japan saw the sharpest drop of GDP among the above economies.  Other net dollar changes during the past three years include drops of 12.7% against the Swiss franc and 5.0% versus the euro and rises of 21.2% against sterling and 5.4% relative to the Canadian dollar.  The dollar is up 3.6% against the kiwi but off 2.0% on balance versus the Australian dollar.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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