The Global Economy in 2004 Back To Trend (Barely)
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.
Editor's Note: Stephen
Roach is Morgan Stanley's Chief Economist and Director of Global
Economic Analysis. His research has focused on the U.S. economy,
with a recent emphasis on productivity, information technology,
and service sector restructuring. He has been with the Firm since
1982 and previously served on the staff of the Federal Reserve
Board and the Brookings Institution. He has a Ph.D. in economics
from New York University.
