Economic forecasters in Washington this week said despite U.S. housing related financial turmoil, the global economy continues to grow at a nearly five percent annual rate. VOA's Barry Wood has more.
Michael Mussa, a forecaster at Washington's Peterson Institute, says the world economy will have grown at just under five percent this year. Growth is expected to continue at a somewhat slower pace of four and a quarter percent in 2008. The growth, says Mussa, is led once again by what he calls the spectacular 11 percent expansion of the Chinese economy. However, he says rapid growth is boosting inflation, something that could be tempered by a rise in the value of the Chinese currency.
"I think the Chinese are going to have to do something and the obvious to do, which they will eventually get around to, is to allow the exchange rate to appreciate much more rapidly," he said.
Mussa expects the US economy will grow by two percent both this year and next. He is surprised that the sharp rise in oil prices over the past four years has not triggered a US slowdown. "I have been not so much surprised but absolutely astounded that the world economy and particularly the US economy has absorbed this quadrupling of the price of oil since early 2002 without hardly a ripple," he said.
Simon Johnson, chief economist at the International Monetary Fund, says the turbulence in financial markets over the past two months is a wake-up call for economic policy makers. "I think the way in which these shocks jumped-the unexpected way they jumped (from America to Europe)-- is a reminder, at least, that there is a lot more potential for instability in the global economy than we often think during periods of tranquility," he said.
Sudden, unexpected losses in the U.S. home mortgage industry in August triggered a global credit squeeze where many financial institutions stopped lending. The problem was at least temporarily overcome when American and European central banks stepped forward with emergency loans and cut short-term interest rates.