Yearender: World economy booms amid perils

The world economy witnessed a strong boom in 2006 despite growing dangers posed by the economic downturn in the United States, soaring oil prices and rising inflationary pressure. Most economists have high expectations for the economic growth next year, though some variables remain.

The International Monetary Fund (IMF) predicted a growth of 5.1 percent for 2006's world economy in its twice-yearly World Economic Outlook which was published in September. If the forecast is materialized, it will indicate the 2003-2006 period is the fastest-growing four-year one since the 1970s. The growth rates for 2003 to 2005 were 4 percent, 5.3 percent and 4.9 percent, respectively.

This year, economies of the United States, the euro zone and Japan have experienced a balanced growth which have facilitated a sustainable and stable increase of the world economy. Meanwhile, such emerging markets as China and India have kept the momentum of fast growing, making them a strong drive for world economic growth.

Although the U.S. economy has cooled down since the second quarter this year due to the slump housing and automobiles sectors, such a weakness has not spread to the rest of the world, Raghuram Rajan, IMF Chief Economist, told Xinhua in a recent interview.

The strong up-trend of such economies as China and India have largely offset the negative influence posed by the United States, noted Rajan.

However, some variables have also drawn concerns from economists. The U.S. economy has been slowing due to less investment in real estate and automobiles sectors since the second quarter of 2006. Oil prices, which once hit record-high of 78.4 U.S. dollars per barrel in July, are still above 60 dollars per barrel.

Meanwhile, central banks of major developed countries have taken austerity measures to prevent inflation.

The IMF, in the September outlook, predicted that 2007's world economy will be increased by 4.9 percent, just 0.2 percentage points lower than 2006, given such favorable anticipation as lower oil prices, less inflationary pressure and more profits gained by companies in the developed countries.

But not everyone is as optimistic as the IMF. Stephen S. Roach, managing director and chief economist of Morgan Stanley, just gave a 4 percent or less for 2007's economic growth.

Although a lot of economists and financial organizations expected 2007 to carry forward the average annual growth rate of 4.8 percent as the recent four years have achieved, the current consumer market seems unable to support such a trend, Roach told Xinhua in a recent interview.

David Resler, managing director and chief economist of Nomura Securities International, Inc., also showed his concerns over the possible drags on world economic growth, saying the growth rate of 2007 will go down instead of keeping the up-trend of 2003-2006.

In his interview with Xinhua, he considered a slower economic growth of the United States as the biggest world economic risk of 2007. Worrying the drop in U.S. real estate is likely to spread to other sectors including the manufacturing industry, he said the U.S. import will consequently go down and thus inflict a negative impact on the world economy.

Another major risk comes from the continued volatility of oil prices. Resler said he can not rule out the possibility of a sharp rise in oil prices which may hit 80 dollars per barrel in 2007.

Morgan Stanley's Roach also voiced similar concerns over a possible hike of oil prices. The oil prices may experience a slim down in 2007 as the step for world economic growth is expected to be slower, but geopolitical issues such as the uncertainty of situation in the two major oil producers -- Iraq and Iran -- makes the prediction for oil prices very difficult, he said.

The world economy is still faced with the rising inflationary pressure, another potential risk, said IMF's Rajan.

In a couple of countries, including the United States, the inflation rate has been higher than the targeted one, he said, warning of a worldwide spread of high inflation.

As many products are set to be on sale not only locally but also internationally, inflation is by no means a problem for local market but by all means a caution for the whole global market, said Rajan. (Xinhua reporters Liu Hong and Hu Fang from Washington, and Lu Huaiqian and Chen Gang from New York, have contributed to this story)

Source: Xinhua