WASHINGTON — World growth is slowing as energy prices continue to rise, and the impact of the home mortgage crisis in the U.S. continues to spill over into foreign financial institutions.
As the dollar weakens further, the world economy is more favorable to growth in U.S. exports and farm exports than expected earlier this year, according to the most recent world outlook report from the USDA’s Economic Research Service.
U.S. gross domestic product grew 2.2 percent in 2007 with growth between 1.2 and 1.6 percent expected in 2008, down from prior forecasts.
Global picture
Slowdowns in North America, Europe, and Japan will keep world economic growth between 2.8 and 3.1 percent in 2008, down modestly from 2007 and a bit lower than the prior forecast.
Growth in Asia, particularly China, and the transition economies is expected to be below 2007, in part due to higher raw material prices and slower growth in Europe and North America.
Oil up 40 percent
Crude oil prices in 2008 are expected to be up over 40 percent from 2007, and gasoline, diesel, and heating oil prices are expected to rise 20, 26, and 22 percent, respectively.
Fertilizer prices were up 65 percent in April compared with April 2007, partly offsetting the impact of higher commodity prices on farm income.
Growth not as robust
The macroeconomic picture has deteriorated from earlier projections as growth in 2008 in the U.S., Japan, and Asia is slower than previously expected.
Strong, but slower, growth in China should mitigate the size of the slowdown in non-Japan East Asia, offsetting the effects of weaker U.S. growth.
China’s GDP is expected to grow 9 percent in 2008, bringing growth in the rest of East Asia of 4-5 percent. The rest of Asia is slated to grow over 5 percent, with India growing more rapidly, although somewhat below prior expectations.
U.S. growth
U.S. growth will slow in 2008 due to a sharp decline in housing construction, financial market disturbances, and very high energy prices.
The U.S. banking system has provided additional capital so farm operators should continue to get commercial bank loans.
Rising farm income and nonfarm exports will be growth areas in 2008.
Weak dollar
The dollar exchange rate is an important determinant of U.S. agricultural trade.
Relative to 2007, the dollar, adjusted for relative inflation rates, is expected to depreciate 3 percent against the euro, 10-13 percent against the yuan, and 6 percent against the Brazilian real, 2 percent against the Mexican peso, and 4 percent against the Argentinean peso in 2008.
The dollar is forecast to be up 3 percent versus the yen and unchanged against the Canadian dollar in 2008.
The dollar will be weaker overall, partly offsetting the impact of slowing world growth on U.S. exports.
Trade outlook
Strong international goods trade continues to support near-trend world growth. Good growth supports surging trade, continuing a cycle beginning in 2003.
This robust trade growth will overcome the drag of very high industrial materials prices on every major economy and greater financing difficulties in Europe, North America, and parts of Asia.
What it all means
Compared with the prior forecast, the economic environment is now perceived to be slightly less positive to U.S. farm exports as the rest of the world’s growth weakens modestly from prior expectation and the U.S. dollar is weaker in most major markets.
The oil market appears to have had only modest economic effects on most major U.S. trading partners, with Canada (as a major energy exporter) better off than expected given the large amount of trade with the United States.
There is an increased probability of further slowing in the world economy, due to recent financial market volatility and continued high energy and input prices.
