To Better Days
The global economy has see better
days, andthe new dane seems a few quarters away.
True is it that we have seen better
—William Shakespeare, As You
Let’s face it. There’s not much good news these
days on the economic front. The indicators are up, down and all
around. We hear talk about recession, inflation and stagnation.
Gasoline is hitting record highs this year. The trade deficit
is widening. Unemployment is up. Wall Street is
I’m nostalgic for the good old days. You know, when
the global economy was perking along and we were basking in the
positive returns on our investments.
Like any business, the insurance industry and its customers
are affected by the economic conditions at home and abroad.
Economic outlooks help companies make business decisions for
future investment and growth. Twice a year, the Organization
for Economic Cooperation and Development (OECD) publishes its
global economic report to help business, government
policymakers and investors understand the global economic
It’s always darkest before the dawn. Unfortunately, it
looks as if dawn is a few quarters away.
In its biannual Economic
Outlook, the OECD predicts several quarters of weak
growth ahead for most of its 30 members, including the U.S.,
Japan and a number of European countries. However, inflation
could stay with us much longer, the OECD says. Also, expect
economic growth to slow this year and next. OECD is now
predicting growth of 1.8% in 2008 and 1.7% in 2009, compared
with earlier predictions of 2.3% and 2.4%, respectively. The
culprits are turmoil in the financial markets, a cooling
housing market and sharply higher oil and commodity prices.
The OECD admits that the current hazy economic picture makes
it difficult for governments to gauge responses. Central banks
could err either way, it says. Federal Reserve Chairman Ben
Bernanke clearly knows that as he weighs the tradeoff between
stimulating the economy and tackling inflation.
While the OECD says the odds have improved that the
financial market turmoil has “passed its peak,” the
“effects on growth are likely to linger.”
So, what’s in the economic tea leaves for some key
The U.S. economy is facing
“strong headwinds,” which in turn are exerting a
sizeable drag on activity, OECD says. The economy will remain
flat through 2008 and then pick up a little momentum as housing
adjustments end, credit eases and the effects of monetary
policy are felt. Inflation should be kept in check by a
significant gap in output and higher unemployment, along with
more stable commodity prices. Robust growth in exports coupled
with the depreciated dollar should help narrow the external
deficit to about 4.5% of GDP next year.
Growth in Europe will moderate
through this year. Activity is restrained by tighter credit,
squeezed real incomes, lower export market growth and market
share losses. Growth will pick up steam in 2009, although
falling housing investment will remain a drag through the year.
Job creation and modest increases in wages will help. While
inflation is currently a worry, it is expected to drop toward
2% as demand eases and energy and food price effects