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In 2008, World Economic Growth Will Slow for Second Year on Credit Problems

NEWS RELEASE

Contacts:
Karen James Cody,
BNA - Press Contact

Arlington, Va. (Dec. 31, 2007) – The U.S. economic expansion is expected to continue in 2008, but growth is cooling significantly as the nation's housing and credit problems intensified in the fall, according to a panel of 23 top analysts surveyed for BNA’s 2008 Economic Outlook report, published today.

The consensus predicts that the world's largest economy will grow 2.1 percent in the new year, whether measured from fourth quarter to fourth quarter or as an annual average. While that is not strikingly slower than what was estimated for 2007— 2.4 percent if measured from fourth quarter to fourth quarter, 2.2 percent as year-over-year— it would make 2008 the most lackluster performance since growth averaged 1.6 percent in 2002.

The strongest 2008 forecast among the survey panelists is for 2.8 percent, the rate of average growth since 2001. The weakest forecast is 0.8 percent, by the only forecaster in the group to have penciled in a recession in the first half of the year. According to the survey panel:

U.S. Economy

• Six-year-old economic expansion will continue, but growth will cool significantly as housing and credit market problems intensify.
• Key underpinnings of the economy will be growth in consumer spending, interest rate cuts, and strong exports.
• Major risks to the economy include tighter credit conditions, steeper drops in home prices, and higher oil prices.

Labor Markets

• Payroll job gains will fall to 74,000 per month in the first six months of the year, then rebound to 105,000 per month in the second half.
• Unemployment rate will rise to 5.1 percent in the latter half of the year.
• Overall tightness in the labor market will end, although demand for some skilled workers will remain strong.

Monetary Policy

• Fed will cut its key interest rate to 3.75 percent, which most economists view as slightly stimulative.
• Inflation should cool over the course of the year, but energy prices remain a wild card.
• Interest rate on 10-year Treasury note should fall early in 2008, then rise to 4.43 percent by the end of the year, as investors' flight to safety fades.

World Economy

• Growth in global real gross domestic product will slow but remain higher than that of the United States.
• Slower U.S. economy will affect the rest of the world, but there is sufficient strength, particularly in emerging markets, to avert a worldwide recession.
• While central banks in Europe are likely to cut key interest rates further, rapidly growing Asian economies are expected to tighten monetary policy.

For press copies of the full Economic Outlook or to interview Diana Gregg, who contributed to the report, contact Karen James Cody at (703) 341-3476 or kcody@bna.com.

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BNA is a leading publisher of news and analysis for professionals in business and government. Reporting from Washington, D.C. and the state capitals for more than 75 years, BNA today produces more than 300 news services, including the highly respected Daily Labor Report and Daily Report for Executives. Visit BNA online at www.bna.com

Diana I. Gregg is an Economics Editor for BNA.  She focuses on economic policy and international finance and development for BNA’s Daily Report for Executives, Daily Tax Report, Daily Labor Report, and BNA’s Banking Report. Gregg tracks the activities of the IMF, the World Bank, and the Inter-American Development Bank.