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Global Scale by Coletta Kemper To Better Days

The global economy has see better days, andthe new dane seems a few quarters away.

By  Coletta Kemper

True is it that we have seen better days.

—William Shakespeare, As You Like It

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 manic-depressive.

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 environment.

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 countries?

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 moderate.

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