Desynchronized Global Recovery under New Leadership

INTERNATIONAL ECONOMIC OUTLOOK 1. GLOBAL ASSESSMENT AND OUTLOOK Despite disappointing performance in a few industrial countries in the second quarter of 2009, several countries reached the low point of their business cycle either in the fourth quarter of last year or in the first quarter of this year, providing evidence of leveling out of the global recession. Global economic and financial conditions remain generally encouraging and the worldwide economic recovery is expected to continue at a satisfactory pace in the second half of the year. Even though uncertainty in the financial and economic environment has been reduced from last year's enormous levels, which brought the global economy to a standstill, there are several areas where policy concerns still remain unusually high and cloud the global business outlook. The timing, scope, degree, and effectiveness of last year's massive fiscal and monetary interventions in the United States, Europe, China, and several other nations, combined with asymmetrical reaction of consumers and businesses among countries, have given rise to desynchronization in the recovery paths of commodity and financial markets. Money supply growth and budget deficits reached granthose proportions during the crisis and now they begin to cast shadows with their aftermath, particularly the timing and the extent of exit strategies, including regulation or quasi-socialization of key industries. As a result, growth rates among major industrial countries and economic blocs have diverged and their position in the global business cycle has changed from past patterns. The current country-reallocation in the worldwide business cycle reflects this decade's dependence of the global economy on the fast-growing emerging economies and recognition of their leadership in economic growth and trade. China and India are leading the recovery followed by Japan and Continental Europe. The United States has become a laggard in the recovery phase of the current global business cycle. Following a steep decline by an annual rate of 8.4 percent in the first quarter of 2009, preliminary data on the second quarter of 2009 shows that the combined output of the member countries of the Organization for Economic Cooperation and Development (OECD) - the 30 richest economies in the world - stabilized by posting a zero annual growth rate from the previous quarter. In the second quarter of 2009, real output shrank by 1 .0 percent in the United States and by 1 .2 percent in the 27-country European Union. At the country level, however, real output rose in Germany and France but declined in Italy and the United Kingdom. The Japanese economy expanded by 3.6 percent in the second quarter of 2009, after four consecutive drops when real GDP experienced its largest plunge in more than 50 years. Looking at high-frequency indicators, e-forecasting's global leading economic index suggests that the worldwide recession may end in the fall of 2009. The forward-looking indicator - a composite index of 43 countrywide leading indicators that tracks economic conditions seven to nine months in advance - rose in June for a fourth month in a row, following 10 consecutive monthly declines. More important, the indicator's six-month annual growth rate - designed to provide early signals of changing directions in global economic activity between expansions and slowdowns - ended a downswing of 13 consecutive monthly declines, posting a near zero negative reading of just 0.3 percent in June of 2009. Signals from e-forecasting's country leading indicators from around the globe display either a slower pace in declines of future economic activity or positive growth rates - a prerequisite for global economic recovery ahead. The recovery evidence come from North America, many European economies, Argentina, Chile, Russia, India, China, Singapore, Indonesia, Taiwan, and Dubai. Our central forecast projects global output to expand by 2. …