The International Monetary Fund has published another global economic outlook, and the conclusion is nearly as optimistic as the previous forecast published earlier in the year. The IMF, in sum, says the expansion of world gross domestic product remains “on track.”
On track here is defined as world GDP rising by 4.3% when all’s said and done for 2005, and yet another 4.3% advance for 2006. That’s down a bit from 2004’s 5.1%, but up slightly from 2003’s 4.0%, the IMF informs. That probably meets the average man on the street’s definition of on track.
But behind the front-row optimism embedded in the prediction for continued growth in the world economy lies anxiety on the mismatch between savings and spending. To quote the IMF’s spin on the subject:
“The U.S. current account deficit is now projected to rise to over 6 percent of GDP in 2005, 0.3 percent of GDP higher than projected in April, driven by higher oil prices and continued relatively strong domestic demand. On the surplus side, the key counterparts are Japan; China; the Middle East oil exporters, which as a result of soaring oil prices are now running a larger surplus in U.S. dollar terms than emerging Asia.”
If this is supposed to frighten investors away from America, so far there’s little sign of terror. As the IMF report observes, “capital inflow to the United States have remained strong, aided by robust private and official flows.”
Perhaps the U.S. is still thought of as the only game in town–town being the global economy. China’s up and coming, to be sure, and the European Community dreams of displacing America as the global powerhouse of first rank. But for the moment, capitalists the world over are willing to give Uncle Sam the benefit of the doubt when it comes to loaning the republic of record money.
Indeed, the yield on the 10-year Treasury remained more or less unchanged today at around 4.18%. If a yield could talk, what would this one be saying? Don’t worry, be happy. Or, to be slightly more blunt, the path of least resistance for America is one of slowing economic growth, though possibly for exogenous reasons.
Hurricane Rita, in other words, may be threatening the Texas coast. “With Rita being a Category four storm it could slam into Texas oil refineries and drilling platform areas following Hurricane Katrina and its damage to refineries in Louisiana and that could have an extreme impact on U.S. economic growth,” Paul Mendelsohn, chief investment strategist at Windham Financial Services, tells Reuters.
But didn’t we hear the same in the first days after Katrina, a storm that was poised to force the Fed to pause, if not end its monetary tightening and send the economy into a tailspin? To be sure, if Rita inflicts serious damage on the Texas’ oil infrastructure, the worst fears may yet come true for economic trouble. But the Fed’s undaunted, or so its 11th hike in interest rates this week suggests. And what of all the debt the federal government is set to incur as the price tag of cleaning up Katrina’s mess? Don’t’ you know that such questions are yesterday’s news? On to new and more timely tragedies.
So we now wait to see if Rita lives up to her billing as another monster. While we’re waiting, it’s worth pondering how far things have devolved for analysis of the American economic and financial scene when the weather determines the fate of the last remaining superpower. Yes, that’s a reaction to the devastation and reach of recent storms. But at some point, fundamentals must resume dominance of informed analysis. But for the moment, there’s only the weekend. Till then, the most important web site for traders remains NOAA.