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National Outlooks: Economic Winners and Losers

December 13, 2008

Posted by businessnews

For many years, the countries that did well financially were those that were located close to the United States, either geographically or economically.

Places such as Canada, Israel and, to some extent, Mexico all benefited from their proximity to the American economic juggernaut.

Well, those days might be over.

As the global economic crisis ripens, many countries are feeling the pinch from the ongoing global credit squeeze.

But the ones staring at the feeblest outlooks for next month and into next year are those with the strongest ? not weakest ? links to the United States, which has turned from economic high-flyer to financial deadweight in six months.

Stellar performers, such as the United Kingdom, Germany and France, are all now looking at slow or no growth next year. Meanwhile, formerly weak sisters, like some South American countries and nations in sub-Saharan Africa, expect to post GDP increases upwards of five per cent in 2009.

Flagging consumer sentiment is hurting Christmas sales in industrialized countries.(CBC)

Some of the troubled industrialized economies are suffering this fate because of those links to the United States.

First of all, with the American economy expected to shrink in 2009, the ability of Canada, Germany and the rest of these nations to sell products to U.S. consumers and make money from investments in that country is distinctly limited.

Also, many companies in these same countries also invested heavily in mortgage-backed type securities either in the United States or in their home markets. After all, if American executives and bankers thought this kind of lending was a money-maker, that theory must work in these other nations.

Unfortunately, the reverse of that logic ? that if asset-backed commercial paper can lose value in the United States, then it can in other countries ? held as well.

So, as stock markets sputter and growth grinds to a halt, one obvious question now becomes, if the world is going down the drain, which countries are closest to the sink hole?

United States

The eye in the centre of the economic hurricane, the United States, has thrown $1.4 trillion US at the financial crisis in a bid to loosen up seized credit markets and give consumers and companies some hope of an eventual recovery.

But little has worked so far, not the soothing words and big bucks of Treasury Secretary Henry Paulson, not the election of a fresh face, Barack Obama, to the U.S. presidency, nor the shiny confidence of ?ber-investor Warren Buffett.

As a result, the American growth speedometer is now stuck at less than zero, with the economy expected to shrink 0.5 per cent next year, according to the World Bank's latest forecast.

The Bank of Montreal predicts that the U.S. unemployment rate, once the envy of the Western world, will top eight per cent in 2009, a 75 per cent jump compared to 4.6 per cent in 2007.

Canada

If the United States is a block of economic cement, that stone is hanging firmly around Canada's neck.

For all of Ottawa?s talk about the country?s banking system being healthier than the U.S. financial system, Canada?s economic fundamentals indicate only marginal economic strength.

Economic growth (%)20082009World2.50.9High-income countries1.3-0.1Developing countries6.34.5U.S.1.4-0.5Source: World Bank

The International Monetary Fund forecasts that Canada's economy will grow by only 0.7 per cent this year, with a slight acceleration to 1.1 per cent in 2009.

The jobless rate was six per cent in 2007; it is expected to reach 6.7 per cent next year.

Clouds of uncertainty swirl around even this sad economic outlook.

Will the country be led by a governing coalition in Ottawa or a straight-jacketed prime minister? Will the government implement some sort of fiscal stimulus package or stick to the strategy of maintaining a zero deficit? Finally, will Canada be able to grow even in the face of the slowing United States?

Answer those question correctly and you can probably ascertain whether this country will be closer to or further away from the economic drain.

Europe

Much of Europe trades within its own borders.

Unfortunately, the big economies on the continent and the United Kingdom are in trouble, dragged down by a financial flu that invaded the English isle through the mortgage market and that has spread to places like the Netherlands, which already had to bail out financial giant ING Group.

The entire region's GDP is expected to contract by 0.7 per cent in 2009, with the U.K. shrinking even more, 1.3 per cent, in the same year.

Unemployment rates in the region should hold steady in the 7.7 per cent range in 2009, according to figures from the European Union.

Within that area, some countries will face high jobless rates, such as Germany, which will see its unemployment percentage rise marginally from 7.3 per cent in 2008 to 7.5 per cent in 2009.

France could perform even more poorly, as its unemployment rate is expected to hit 9.3 per cent in 2009, up from eight per cent in 2008.

Other countries, however, will continue to post decent jobless figures even as their growth slows.

The Netherlands, for instance, will see barely any GDP growth in 2009 ? 0.4 per cent, compared to 2.3 per cent this year. Yet the European Commission forecasts that the tiny country's unemployment rate will only rise marginally, to 3.4 per cent in '09, up from three per cent in 2008.

Asia

Across the Pacific Ocean, the economic story is on a split screen.

Asian stock markets have risen and tumbled with global economic fortunes.(John Javellana/Reuters)

On the one hand, China is staring at a slowdown in its export sales to other, mainly industrialized countries, and has produced an aggressive stimulus package worth close to $600 billion US.

Japan is in a recession as the yen rises and auto sales plummet.

Yet many countries in the region look to be in decent shape to handle the ongoing economic bad weather.

Indonesia, for instance, has been hammered by falling oil prices. But the island country ? and one of the biggest Islamic nations on the planet ? still posted export gains of 14 per cent in the third quarter of 2008 and has its highest consumer confidence levels since February.

GDP growth (%)20082009China9.79.2India7.96.9Vietnam6.35.4Indonesia6.15.5Source: IMF

The IMF does expect Indonesia to lose economic steam next year, but from a GDP growth rate of six per cent in 2008, down to 5.5 per cent next year.

Malaysia was forecast to grow at 5.7 per cent this year, a rate which could be more than halved next year to 2.7 per cent in 2009. Even at the slower pace, however, the Asian country will be expanding at a faster clip than any country in Europe or North America.

Africa

The poster continent for "economic basketcase" actually will keep growing in 2009, despite plunging commodity prices and a financial crisis that could harm its access to capital.

In fact, if the IMF is correct, Africa's GDP will expand by 4.7 per cent next year, down but only marginally so from 2008's 5.2 per cent.

The continent, not often associated with the words "economic growth spurt," has benefited from the worldwide commodities boom, especially rising gold prices, as well as higher oil prices.

Already, however, crude is $100 US less than its summer peak price of $147 a barrel. Other commodities also have fallen in value, putting Africa's outlook, especially for the sub-Saharan countries, in jeopardy.

Higher gold prices helped African economies grow.(CBC)

In addition, African product sales to other nations probably will suffer during the current world financial upheaval.

"Should the global slowdown prove much deeper than anticipated, fostering a sharp fall in world trade growth, the contribution of net exports to African GDP growth will diminish," said the World Bank in its latest outlook forecast.

Still, the multilateral bank noted that, even once you subtract the regional powerhouse South Africa, GDP growth could shoot ahead by 5.7 per cent in 2009 and 6.6 per cent in 2010.

Latin America and the Caribbean

The countries south of Mexico have enjoyed decent growth over the past few years.

In the case of this region, however, much of the recovery was catch-up, as Argentina, Brazil and Mexico, a country with extensive economic links within Latin America, all endured severe economic dislocation in the late 1990s.

Because of their economic history, most of the governments in Central and South America and among the Caribbean island nations always have one eye on rising prices.

So, when higher food and crude-oil costs began to drive up prices in other parts of the economy in 2008, central banks started hiking interest rates ? at the very time when other countries, like Canada, were more concerned about a financial slowdown.

Lenders stopping looking at these countries as a destination for their cash, a move that crimped GDP growth.

Still, many of these nations will posted respectable growth in 2008 and '09.

GDP growth (%)20082009Argentina6.53.6Chile4.53.8Brazil5.23.5Venezuela6.01.9Source: IMF

Colombia, for instance, will see its 2008 GDP growth of 4.0 per cent take a mild haircut, losing half a percentage point and falling to 3.5 per cent for the next year.

Venezuela, with its oil-heavy economy and unpredictable government of Hugo Chavez, appears likely to experience the biggest economic fall, stumbling to a GDP of slightly less than two per cent in 2009. That would be a substantial drop from the six per cent the country is supposed to post in 2008.

Middle East and North Africa

The oil-pumping nations of the Middle East and North Africa have enjoyed strong economic growth based mainly upon high crude prices.

These days, however, all regional forecasts are subjected to the caveat that oil prices are plunging so fast, it makes predictions difficult.

For example, the World Bank outlook for the global economy pegged growth for 2009 for the oil-producing countries of the Middle East and North Africa at 3.9 per cent. That level represented a comedown from 5.8 per cent in 2008 and 6.4 per cent in 2007.

But the forecast was predicated on a crude oil price in the range of $80 US a barrel. Unfortunately for these nations, current oil prices are close to half that level, at $43.

GDP growth (%)2008-2009 Iran5.55.0, Libya7.18.1, Saudi Arabia5.84.3, Israel4.32.8. Source: IMF

Of course, many analysts believe that some economic recovery combined with the notion that OPEC will try to push oil prices back up to the $70 level could help to refloat crude values.

Still, the longer oil prices stay extremely low, the more likely that the economic prospects of the Middle East will follow suit.

 
 
 
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