For the first time in seven years, I approach my annual thematic forecasting ritual on a distinctly downbeat note. Small wonder: The downside risks in last year’s outlook morphed into the Crunch of 2007, which is still playing out. In contrast, at the start of 2007, I focused on the notion that a resilient global economy would promote higher real interest rates. While widespread complacency about risk premiums made me nervous, and I foresaw liquidity dwindling and market volatility rising, I relegated big market moves to ‘tail events’ that seemed unlikely (see “Critical Macro Investment Themes for 2007,” Global Economic Forum, January 3, 2007).
[I]Stephen Roach, Head Economist, Morgan Stanley[/I]
[B]Weekly Bank Research Center 01-07-08[/B]
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[B] Macro Investment Outlook for 2008 Decidedly Downbeat [/B]
[/B] [/B] [/B]</p> [I][I] Stephen Roach, Head Economist, Morgan Stanley [/I] [/I]
For the first time in seven years, I approach my annual thematic forecasting ritual on a distinctly downbeat note. Small wonder: The downside risks in last year’s outlook morphed into the Crunch of 2007, which is still playing out. In contrast, at the start of 2007, I focused on the notion that a resilient global economy would promote higher real interest rates. While widespread complacency about risk premiums made me nervous, and I foresaw liquidity dwindling and market volatility rising, I relegated big market moves to ‘tail events’ that seemed unlikely (see “Critical Macro Investment Themes for 2007,” Global Economic Forum, January 3, 2007).
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<strong style=""> [B][B][B] [B] European Central Bank to Cut Rates by 50bp in Second Half of 2008 [/B]
[/B] [/B] [/B] <em> Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
We have altered our rate forecasts and we now pro-ject a longer easing cycle from the Fed and rate cuts of 50bp from the ECB in the second half of 2008. Softer economic data over the last month points to more downside risks to growth in the coming quarters glob-ally. The US will be flirting with recession during the first half and we therefore now forecast the Fed cutting rates by 25bp at every meeting in the first half of 2008. This is a total of 100bp, taking the Fed funds rate to 3.25%.
<strong style=""> [B][B][B] [B] 2007 Was Once Again a Year of Surprises [/B]
[/B] [/B] [/B] [I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]
As we start 2008, not all of the economic data for 2007 are in yet but it is worth reviewing how the year went. One way of doing this is to compare consensus expectations for key economic data made at the start of 2007 (based on forecasts made in December 2006) with those at the end of the year. The results are somewhat surprising: growth was stronger in 2007 than was expected, and inflation and interest rates were higher. This was despite oil prices roughly doubling and the sub prime crisis breaking out from August onwards. The latter event meant that the dollar fell against most currencies in 2007, as the US sits at the epicentre of the financial market turmoil that was sparked by rising defaults rates in US sub prime mortgage loans that are in many structured products used as collateral in credit markets.
<strong style=""> [B][B][B] [B] US Credit and Housing Market Difficulties Broadening, Impacting US Outlook for 2008 [/B]
[/B] [/B] [/B] [I] Steve Chan, Economist, TD Bank Financial Group [/I]
There was no data out of Canada this week, so our focus was squarely on the U.S. economy. Most of the news there confirmed that the impacts from a retrenching housing market and credit problems are broadening. After stronger than expected growth in the second and third quarter of 2007, annualized growth in U.S. real GDP is estimated to have been les than 1% in Q4. This week’s reports help validate our view that the first half of 2008 will not be much better in the world’s largest economy.
<strong style=""> [B][B][B] [B] A Fast and Furious Start to 2008 [/B]
[/B] [/B] [/B] [I][I]John E. Silvia, Ph.D. Chief Economist, Wachovia[/I] [/I]
There was a great deal of economic, financial, and political news to digest this week. Most economic reports show the economy still losing momentum under the weight of the correction in the housing and mortgage sectors. The financial markets continue to be roiled by competing fears of higher inflation and weaker economic growth.
<strong style=""> [B][B][B] [B] Other Pre-screened Independent Contributors[/B]
[/B] [/B] [/B] [I] J-Chart [/I]
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