UID:
kobvindex_DGP1641973331
Format:
zahlr. graph. Darst., Tab., Lit.Hinw.
ISSN:
0043-2652
Content:
In 2004, world economic growth was strong, with output having risen by around 5 percent. While growth decelerated in the course of the year, the economic expansion remained on track in most regions with the major exceptions of Japan and Euroland. Particularly, the two main engines of the world economic recovery, the United States and China, proved to be resilient in face of a pronounced rise of the price of crude oil and a modest monetary tightening. Currently, low inflation and low interest rates prevail in the world economy. Although the Fed started to raise policy rates in summer 2004, the real short term interest rate in the United States is still almost zero. In Euroland and in Japan, the real interest rate in the money markets was around zero as well. At the same time, in the world capital markets long-term interest rates have declined even further from levels which had already been very low. The development of long-term interest rates is surprising given the robust growth in the world economy, a slight pickup in inflation and the string of interest rate increases by the US Fed. Part of the explanation may lie in the fact that the protracted sluggishness of global corporate investment has limited the demand for capital in the financial markets which, given abundant global savings, has contributed keeping real interest rates low. The most important factor, however, seems to be the continued strong increase in global liquidity. With real interest rates in the money market near zero, the search of investors for higher yields leads to rising demand for less liquid and more risky assets and drives down the risk premium outside the money market. As a result, prices rise for all kinds of assets, not only bond prices but also equity prices and, in an increasing number of countries, property prices. In order to prevent inflationary expectations from rising and to counter the inflating of a bubble, the Fed is expected to continue its course of gradual increases in interest rates that aims to move the Federal Funds Target Rate closer to a neutral level. With US interest rates rising, monetary conditions will gradually tighten in the whole dollar zone. The ECB is expected to remain interest rates on hold for the time being, given the current weakness in the economy and the downward pressure on inflation exerted by the appreciation of the euro. Euro interest rates are projected to start rising in 2006 only, when growth in the euro area is expected to have firmed. Against this background, and assuming some correction in the excessively low household savings rate in the US and in the UK, world economic growth is likely to lose momentum in 2005. The slower demand growth, however, in combination with increasing production capacities, will contribute to a gradual decline in the oil price. This will help world output to start accelerating again in the course of 2006. In the industrial countries, real GDP is likely to rise by 2.2 percent and 2.6 percent in 2005 and 2006, respectively. The emerging market economies are set to lose steam as well, although growth will remain robust. All in all, with output growth at around 4.0 percent, the pace of world economic expansion is expected to continue at rates slightly above the trend. Main risks for the outlook include the possible failure to engineer a 'soft landing' in China and the continued high level of the US current account deficit, which may trigger responses in the financial markets such as another significant bout of real effective devaluation of the dollar and a substantial rise in US long-term interest rates. (Die Weltwirtschaft / SWP)
In:
Die Weltwirtschaft, Berlin : Springer, 1950, (2005), 1, Seite 1-35, 0043-2652
Language:
German
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