02/25/2004: Arcanum
Global Economic Forecast From A Big Investment House
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We view the global economy is poised to record its strongest pace of growth since 2000. Our aggregation of country and region-specific GDP forecasts points to global growth of 4.4% in 2004, the same pace of growth as that which was recorded at the turn of the millennium. This is, moreover, nearly 1 percentage point higher than the average pace of global growth that has been chalked up over the past thirty years.
This prospective strength in world demand can be attributed to a number of factors, including the following:
- US fiscal and monetary policies are likely to remain stimulative in H1 04, providing more support to the level of private sector demand. Household disposable incomes, in particular, should get a boost from larger than usual tax refunds stemming from last year's tax cuts.
- Aggregate corporate sector balance sheets, as we discuss in more detail below, are healthier than they have been for two decades. We think this bodes well for capital spending growth over the coming months. A more active replacement cycle and firming capacity utilisation rates should also provide some uplift.
- Inventory levels are fairly low relative to final sales, especially in the US and Japan. While increasing rates of e-commerce activity and higher shares of service sector trade (compared with manufacturing) have diminished the relative importance of this in explaining the gyrations in advanced economies, restocking initiatives could nonetheless provide a modest jolt to global trade volumes over the months ahead.