Friday, October 19, 2007

The year 2007: Some comments

Most of forecasters are already working on their projection for the year 2008.Michael Mussa ,has said that the best friends for them is luck. At the beginning of this year, there was little concerns about issues such the sub prime mortgage markets crisis, and its expected impact on global economy. At the same time, it seemed that the US economy was getting on its way through, toward a soft landing following the upward adjustment on the interest rate. Markets were wondering what would it be like without A Greenspan as Chairman of the federal Reserve ,and the character of the incoming new boss B Bernanke, along with China stock exchange markets turbulences , after applying new regulation to reduce speculation and gambling .Most of the attention, was on oil prices behaviour . Europe heavily concentrated on environment ,set the pace on the issue for the month to come .Finally Latin America, even with deviation in some countries from macroeconomics fundamental, had the expectation of another year of economic growth.
A famous question which was done by former President Reagan, is fully applied at the end of this year: Are we better off now than what we were at the beginning?. This question matter because when it come to make forecasts , it is very important the conditions surrounding those forecast ,otherwise there is chance to be wrong on markets predictions. Therefore, any forecast for the year 2008 ,should take into account the answer to this question, otherwise who knows what the forecasters are really predicting?. If we are better off, any forecast would mean to improve even further our current conditions .If not, any forecast would mean any thing ranging to be worse off than we are right now ,or to keep the same situation at the same level it is right now. Macroeconomic data only measures the addition to current GDP value, but not the framework which influence those results. It usually appears as the “error term” in the econometric model. Well some time the “error term” make the difference, between right or wrong.
My guess is that we are not worse off now ,than what we were at the beginning . Every aspect of global economy ,is a bit better now than what it was at the beginning of the year , and above all better than what it could have been. Let checks some issues which were on the list of potentially harmful for the global economy: Volatility on global stock exchange markets ,oil prices increases (which contrary to the expected is still below U$$100 a barrel)),sub prime mortgages markets crisis, slowdown on the pace of economic growth in China, India and Europe, and protectionism threats .
How come that global economy has been so resilience, so far ?. My hypothesis is that the world economy , is moving toward a new stage with a more diversified distribution of world product. Actually, 40 % of Global GDP is produced on emerging markets, reducing the risk of global slowdown .The pace of economic growth ,of the leading economies in such a group ,is strong enough to keep the train moving forward. Global economic growth has met its fifth year of continuing growth at a 5% rate. On the other hand, it seems that a global framework is already working to protect specific issues such quality products, and that of domestic economy policy. Therefore there are better instruments and tools to solve current global economic challenges, which means that there is space for moderate optimism for the year 2008.-.

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