Slow, Grudging Recovery Says Industry Group

While the global economic picture will remain troubled for the near term, slightly improved U.S. economic data could be a harbinger of positive signals for a grim world landscape, according to a report by MAPI. Economist Cliff Waldman says that signs of firming demand in the U.S. economy, along with a global move toward historically accommodative monetary policies, suggests that a weak rebound in industrialized country output and a modest acceleration of developing country output could begin in the later months of 2009.

"While the rare financial underpinnings of the current global crisis make it more difficult than ever to assess the impact of policy, it is difficult to believe that rock-bottom prices for fuel and commodities, the lowest interest rates in a generation, and a growing effort to repair bank balance sheets won't eventually be sufficient to restore at least weak positive activity," Waldman said.

MAPI expects the growth of total U.S. goods and services export demand to contract by 8.3% in 2009, the deepest annual export contraction since 1958. A modest rebound of 1.2%, however, is anticipated during 2010, "as shattered global confidence is rebuilt."

Most advanced economies are expected to experience weak recoveries in gross domestic product (GDP) and in manufacturing output during 2010. GDP in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom and Sweden), and Japan, is expected to contract by 3% during the second quarter of 2009 and further contract by 1% during the third quarter. MAPI forecasts growth to resume during the fourth quarter of 2009 but to be at or below 2% through the fourth quarter of 2010.

Aggregate developing country growth is expected to be a sluggish 2% during the second quarter of 2009 and accelerate to 2.5% during the third quarter, to 3% during the fourth quarter of 2009 and the first quarter of 2010, gradually followed by further gains to 3.7% by the fourth quarter of 2010.

"Developing country prospects are mixed, with China appearing to sidestep the feared 'hard landing' scenario, but the Indian economy slowing more than expected," Waldman said. "Developing and newly industrialized economies in East Asia have turned surprisingly weak, but prospects are seen as being good for modest recoveries both in economic and in manufacturing growth during 2010."

MAPI forecasts the U.S. dollar to appreciate by 4.5% against the currencies of the industrialized nations during the second quarter of 2009 (on a compound annual basis) and then be flat for the balance of the year. The dollar is expected to remain flat overall in 2010, taking into account modest depreciation during the first half of the year and slight appreciation during the second half of the year.

Against the currencies of the developing countries, MAPI envisions the dollar to fall by 2% during the second quarter of 2009, decline by 5% during the third quarter, and drop by 8% during the fourth quarter. During 2010, the forecast is for 5% depreciation during the first quarter, an 8% decline during the second and third quarters, and a 12% fall during the fourth quarter.