Reports predict slow going worldwide for 2009

By Industrial Distribution staff -- Industrial Distribution, 10/10/2008 7:40:00 AM

News that the crisis in the United States financial sector is spreading around the world indicates that the global economy could face tough times next year, according to reports from the Manufacturers Alliance/MAPI and the Conference Board.

The MAPI's Quarterly Forecast of U.S. Exports, Global Growth, and the Dollar for the fourth quarter indicates that the lone bright spot for the American industrial economy, exports, could face increased pressure.

Although much of the September turmoil in the financial markets was attributable to long-overdue adjustments to risks posed by "the securitization mania of the last 20 years or more," an increased aversion to further risks poses a threat to the global economy, according to the group's report.

"Recent data which show that the U.S. economy may have lapsed into a recession and that growth in other key industrialized economies has either stalled or contracted further augments anxieties over the magnitude of the global slowdown," MAPI economist Cliff Waldman said. "This raises the specter of a more rapid decline in global growth than had been expected and creates concerns about the near-term outlook for U.S. export demand, the principal positive element in the U.S. economic picture during the past year."

The report predicts that the growth of demand for U.S. goods and services exports will slow from 8.4 percent in 2008 to 7.3 percent in 2009¬¬-a significant drop from the third-quarter prediction of 9.7 percent growth.

That outlook is echoed in the Conference Board's fourth-quarter report, which predicts negative growth during the quarter and into 2009.

And there's no relief in sight for the ailing housing market, according to the board's vice president and chief economist Bart van Ark.

"We see no sign of improvement in the housing market before the first half of 2009 at the earliest and housing prices may drop further-at significant cost to consumer spending over the next two quarters, holiday season or none," van Ark said. "Meanwhile, several short-term credit channels such as commercial paper are also freezing up, which can seriously impact day-to-day business operations."

That pressure should ease if the federal government's intervention prompts banks to resume lending, which in turn should help restore investors and business confidence.
"A sustainable long-term growth environment will require a new financial architecture that balances the necessary spreading of financial risk with sufficient regulatory oversight," van Ark said. "Such an environment cannot rely solely on the financial conservatism of deposit-based lending. A huge amount of capital investment will be needed to drive the innovation and technological change that are our best hopes of achieving a competitive and sustainable future for the global economy."