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Global Economic Outlook 2008

Global Economic Outlook 2008

The medium-term direction of the global economy will be set largely by two countries: China and the US. Together, these behemoths account for a sizable share of global economic growth, and especially import growth – thereby stimulating exports and economic growth in the rest of the world. Hence, how they perform matters. Moreover, the fi nancial imbalance between these two countries has already had serious consequences for growth, exchange rates, and interest rate. More may follow. Currently, the global economy is undergoing a transition from one era of economic expansion to another. The transition itself was brought on by the bursting of a bubble in the US housing market. Yet bubbles don’t emerge at random. They usually have a cause in the form of an economic event. In this case, the event was the huge fl ow of liquidity from China to the US. And, of course, bubbles always eventually burst.

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