Global growth is forecast to slow further as consumers in the United States rein in spending and signs of weakness in that economy become more pronounced. However while the US slowdown is placing downward pressure on global growth, the continued strength of developing economies, such as China, is expected to ensure a global recession is avoided.
According to the latest Dun & Bradstreet's (D&B) Economic & Risk Outlook Report, world real GDP growth in 2008 will largely be supported by powerhouse nations such as China, with D&B forecasting growth of 3.0%.
The report shows a sombre outlook for some of the largest economies and key trading partners for Australia.
Despite high inflation the US Federal Reserve cut the federal funds rate at its March meeting bringing the total reduction since September 2007 to 300bp. Given the fragility of the US economy and financial markets D&B expects at least one more cut before the end of the year. |
In the UK lower economic growth (D&B has forecast real GDP growth of 1.9% in 2008) will result in higher government spending on items such as social security at a time when receipts will be growing more slowly. This means the fiscal accounts are set to remain in larger deficit over the two-year forecast period than previously expected.
In Asia, while China continues to be a key source of world growth, inflationary pressures threaten to force the government to put further brakes on the economy. Over the short term domestic demand will be resilient, but this will further fuel inflation in 2008-09.
Meanwhile although the rate of corporate earnings in many industries in Japan remains high, a drop in the latest industrial output figures and the capital goods shipment index are cause for concern. This, combined with a fall in average salaries and notably higher fuel and food prices is putting pressure on private consumption.
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Country
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GDP growth forecast 2008
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| World |
3.0% |
| Australia |
3.0% |
| United States |
1.4% |
| United Kingdom |
1.9% |
| China |
9.7% |
| Japan |
0.9% |
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According to Christine Christian, D&B's CEO, the sub-prime lending crisis in the United States has had significant detrimental impacts on developed economies throughout the world.
"The world is changing everyday. Since September of 2007 we have watched the impacts of the global credit crisis unfold. The US is now teetering on the edge of recession and a further slowing of global activity in the short term appears to be inevitable," said MS Christian.
The difficult economic times faced in these countries have flow on implications for
Australian businesses, particularly those organisations that export to these countries.
Australia is now showing signs of a slowdown and D&B expects that real GDP growth will drop from 3.9% in 2007 to around 3.0% in 2008. A further softening in 2009 is possible as global commodities prices moderate.
The RBA left interest rates unchanged at its April board meeting signalling a shift in its policy stance from a tightening bias to neutral amid signs that the economy is slowing and wage pressures are steadying. However despite this, the combination of high interest rates and market turmoil has fuelled executive concerns regarding the impact of the credit market on operations. D&B's latest Business Expectations Survey shows that more than two thirds (71%) of executives expect a tightening of credit will have a negative impact on operations in the June quarter.
Ms Christian said the impacts of the credit crisis have well and truly hit Australian shores.
"The outlook in Australia has declined since 2007. Businesses are now operating in tougher economic conditions and evidence of their cautious approach is beginning to show through.
"Growth is expected to soften and domestic household and business sentiment is beginning to moderate. Despite this, the ongoing resilience of some sectors should help to keep the economy buoyant throughout the current turbulence."
Australian consumers are also feeling the pinch. A Newspoll survey conducted for D&B revealed a jump in the number of Australian households expecting higher debt levels in the June quarter, with 28% of consumers expecting to be in more debt. This is up from 20% in October of 2007.
The survey also showed that more than one in five Australians' expect to use their credit card to finance purchases they otherwise couldn't afford in the June 2008 quarter and eleven per cent of people aged eighteen to thirty-four expect that they will have to miss a bill or debt repayment in the next three months.
"Consumers have been struggling with the rising costs of petrol and other daily items for sometime now," said Ms Christian.
"The recent series of interest rate rises has increased the level of pressure on many individuals to the point where a growing number of households expect their overall debt levels to rise further."
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To obtain a copy of the full report please contact:
Danielle Woods
D&B PR Manager Australia & New Zealand
(02) 8270 2926
Find out more about D&B's Country Risk Services>>
About D&B
D&B is the world's leading provider of business-to-business credit, marketing and purchasing information and receivables management services. D&B manages the world's most valuable commercial database with information on more than 130 million companies.
Information is gathered in 193 countries, in 95 languages or dialects, covering 186 monetary currencies. The database is refreshed more than one million times daily as part of D&B's commitment to provide accurate, comprehensive information for its more than 150,000 customers.
The Australasian operations were bought out by the senior management group in August 2001. It was the first MBO of a wholly owned subsidiary in D&B's history worldwide.
Today Lazard Carnegie Wylie owns an approximate 90% stake in DBA and the local management team a 10% stake.
Strategies for future growth include developing DBA's commercial and consumer credit referencing business; expanding its receivables management outsourcing business; maintaining its lead in the development of unique credit and risk scoring products; and developing new products specifically tailored to the Australasian market. DBA currently employs over 500 people in Australia and New Zealand.
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