Wall Street Sees World Economy Decoupling From U.S.
Wall Street economists are reviving a bet that the global economy will withstand the U.S. slowdown.
Just three years since America began dragging the world into its deepest recession in seven decades, Goldman Sachs Group Inc., Credit Suisse Holdings USA Inc. and BofA Merrill Lynch Global Research are forecasting that this time will be different. Goldman Sachs predicts worldwide growth will slow 0.2 percentage point to 4.6 percent in 2011, even as expansion in the U.S. falls to 1.8 percent from 2.6 percent.
Underpinning their analysis is the view that international reliance on U.S. trade has diminished and is too small to spread the lingering effects of America’s housing bust. Providing the U.S. pain doesn’t roil financial markets as it did in the credit crisis, Goldman Sachs expects a weakening dollar, higher bond yields outside the U.S. and stronger emerging-market equities.
“So long as it doesn’t turn to flu, the world can withstand a cold from the U.S.,” Ethan Harris, head of developed-markets economic research in New York at BofA Merrill Lynch, said in a telephone interview. He predicts the U.S. will expand 1.8 percent next year, compared with 3.9 percent globally.
That may provide comfort for some of the central bankers and finance ministers from 187 nations flocking to Washington for annual meetings of the International Monetary Fund and World Bank on Oct. 8-10. IMF chief economist Olivier Blanchard last month predicted “positive but low growth in advanced countries,” while developing nations expand at a “very high” rate. He will release revised forecasts on Oct. 6.
“The world has already become partially decoupled,” Nobel laureate Joseph Stiglitz, a professor at New York’s Columbia University, said in a Sept. 20 interview in Zurich. He will speak at an IMF event this week.
Sixteen months after the world’s largest economy emerged from recession, the U.S. recovery is losing momentum, with factory orders falling 0.5 percent in August and unemployment forecast to increase to 9.7 percent in September from the previous month’s 9.6 percent, according to the median estimate of 78 economists in a Bloomberg News survey.
Their predictions don’t include another contraction, with growth estimated at 2.7 percent this year and some indicators showing progress. Orders for capital goods rose 5.1 percent in August and the number of contracts to purchase previously owned homes increased 4.3 percent; both were higher than forecasts.
China Manufacturing Accelerates
Even so, emerging markets are showing more strength. Manufacturing in China accelerated for a second consecutive month in September, and industrial production in India jumped 13.8 percent in July from a year earlier, more than twice the June pace.
“It seems that recent economic data help to confirm the story of emerging-markets outperformance,” said David Lubin, chief economist for emerging markets at Citigroup Inc. in London.
The gap in growth rates between the developing and advanced worlds is widening, he said. Emerging economies will account for about 60 percent of global expansion this year and next, up from about 25 percent a decade ago, according to his estimates.
The main reason for the divergence: “Direct transmission from a U.S. slowdown to other economies through exports is just not large enough to spread a U.S. demand problem globally,” Goldman Sachs economists Dominic Wilson and Stacy Carlson wrote in a Sept. 22 report entitled “If the U.S. sneezes…”
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