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Robust World Economy Stumbles in 2007

The world economy registered another impressive performance in 2007, despite the constraints of record-high oil prices and a credit squeeze that from August significantly slowed the pace of investment and lending. VOA's economics correspondent Barry Wood reports China and India have been the growth engines of the world economy.

Oil prices doubled during 2007. They have increased by 500 percent in five years. Despite that, the world economy has been experiencing its best performance in 30 years.

The International Monetary Fund expects 5.2 percent growth in 2007, a slight reduction from the record pace of 2006. Reflecting an anticipated growth slowdown in the United States, the IMF is projecting a 4.8 percent global expansion in 2008.

A money manager in New Delhi, Surjit Bhalla, says economies are expanding on every continent.

"What you have in terms of a world situation is fantastic. Vietnam, the developing countries, sub-Saharan Africa, Latin America, they all joining in world growth," said Bhalla. "So I think this is a tremendous time. The world has never, ever witnessed what we are witnessing today."

The most dynamic economies are in Asia. That continent's emerging markets are registering growth rates in excess of eight percent.

IMF Deputy Research Director Charles Collins says China is a principal driver of the world economy.

"On purchasing power parity terms [adjusting for different price levels], China represents 15 percent of the global economy. So with China growing over 10 percent over the past few years it has provided the largest chunk of global GDP [gross domestic product] growth for some time," he said.

The dollar has continued its decline against most other major currencies. The adjustment has made U.S. exports more competitive and points to a possible narrowing of global financial imbalances. But Michael Mussa, the former chief economist at the IMF who is a researcher at Washington's Peterson Institute, says China's refusal to allow a faster appreciation of its currency remains a huge problem.

"In China, the current account surplus, which used to run at one to two percent of GDP in the high growth period of the 1990s has gone from two, to four, to seven, to 9.5, and this year, to 12 percent of GDP. This is the direct consequence of a Chinese policy that unreasonably and unwisely seeks to resist warranted, substantial nominal appreciation of the Chinese exchange rate," he said.

In the United States financial institutions have been under pressure from problem home-mortgage loans. The U.S. housing slowdown has affected global markets as banks worldwide purchased packages of sub-prime loans, whose value plummeted in tandem with falling U.S. home prices.

Federal Reserve Board Chairman Ben Bernanke suggested at mid-year that the housing problem was far from being over.

"Rising delinquencies and foreclosures are creating personal, economic, and social distress for many home-owners and communities, problems that are likely to get worse before they get better," said Bernanke.

World stock markets generally had a good year, with Asia again having the best performers. Wall Street registered only meager advances, and even those gains were at risk as markets turned down in mid-December.