The Global Economy in 2004

The Global Economy in 2004

Stephen Roach reports on the Morgan Stanley Global Economy in 2004, and postulates that forecasting remains more of an art than a science, in his view, especially in today's unique macroclimate. The current cycle bears no resemblance at all to its predecessors over the past 50 years. The modern-day world economy has never been this US-centric. And the United States has never had to deal with the aftershocks of a post-bubble business cycle like the one still unfolding today. The baseline case, he says, presumes that the world can neatly finesse these extraordinary imbalances.

The Morgan Stanley forecast for world GDP growth in 2003 remains unchanged at 3.0% -- a modest improvement from average gains of 2.1% estimated over the 2001-02 interval. And, the estimate for 2004 calls for world GDP growth to accelerate further to 3.9%, fully 30% faster than gains estimated for 2003 and, in fact, the fastest year of global growth in four years.

The mix of global growth is projected to remain decidedly US-centric through 2004. Growth in the US economy is expected to accelerate to 3.9% in 2004, a marked acceleration from subpar gains of 2.5% over the 2002-03 interval. Powered by a solid capital spending dynamic, the projected rebound in 2004 represents the first year of legitimate cyclical recovery following the mild recession of 2001.

Growth elsewhere in the industrial world is expected to remain subpar. Europe is a case in point, with a projected 2.6% increase in 2004 qualifying as a disappointing rebound in the aftermath of three years of 1.3% average growth.

Japan is expected to have average gains of just 0.5% over the 2003-04 interval underscoring an unwillingness to get on with the heavy lifting of financial sector reforms. Over all, the industrial world GDP growth is expected to accelerate to just 2.9% in 2004.

In the developing world, GDP growth is expected to hit 5.3% in 2004. Domestic demand continues to lag in the developing world; as such, the growth dynamic in this segment of the world remains export-led.

China continues to lead the pack, with its GDP growth expected to reaccelerate to 7.9% in 2004 after average gains of 7.5% in 2002-03. Elsewhere in Asia, the acceleration is expected to be more muted.

Excluding China, growth in Asia ex Japan is expected to hit only 4.6% in 2004, only a slight pick-up from average gains of 4.1% in 2002-03. Growth in Latin America is expected to pick up to a 4.1% rate in 2004, a dramatic acceleration from average gains of just 0.4% over the preceding three years, 2001-03. A post-crisis snapback in Argentina is expected to account for the bulk of the rebound; gains elsewhere in the region are expected to remain little changed from the pace of 2003-03. Growth in emerging Europe is expected to pick up to 4.3% in 2003 following two years of 3.5% growth in 2002-03; gains in Russia (4.6%) and Turkey (5.0%) are anticipated to lead the way.

Read the full report here.

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