The world economic outlook for 2008.

Inflationary pressures will increase in 2008. In the past, surges in oil prices (as well as food prices) have moderated relatively quickly and were temporary rather than permanent "shocks." As a result, monetary authorities have traditionally focused on "core" inflation, which does not consider the effects of movements in energy and food prices. However, the current escalation in oil and food prices has continued far longer than normal. Additionally, food price shocks, which are usually contingent upon regional weather conditions and are not usually synchronized across countries, are currently a major source of inflation in a large number of countries. Therefore, "core" inflation may now underestimate the risk to price stability in a number of countries. (16)

In developed countries such as the United States, Japan, and Canada, core inflation may remain near 2.0 percent due to an anticipated slowdown, but "non-core" inflation may accelerate to 3.5 to 4.0 percent. Australia and New Zealand should see overall inflation remain in check. In Western Europe, core inflation, excluding energy, food, and tobacco, rose considerably in 2007 beyond the European Central Bank target of 2.1 percent, and there is a strong impulse from non-core oil and food prices. However, strong currency values have mitigated imported food and oil price rise impacts to some degree.

Inflationary pressures in emerging European countries continue to rise as both demand-pull and cost-push factors are at work. While inflation was relatively low in the Czech Republic, Poland, and Slovakia, inflation rose to 8.0 percent in Hungary in 2007 and was high in the Baltic States, even reaching double digits in Latvia. This trend should continue in 2008.

The European economies in transition have a mixed inflation outlook for 2008. During most of 2007, despite strong growth, the rate of inflation remained in the low single digits in most countries. Croatia, Bosnia, and Macedonia should see continued moderate inflation, while Serbia's rate of inflation will be relatively high in comparison.

Inflation in developing countries is forecast to pick up slightly in 2008. In Africa, the relatively low inflation levels of 2007 should be sustained in most countries, with the exception of Chad and Eritrea, due to rising insecurity. Western Asia will see significant inflationary pressures in 2008. Yemen may see an inflation rate in excess of 20.0 percent, while Iraq is forecast to see inflation increases of 53.0 percent due to turmoil and conflict. Qatar may experience a 12.0 percent inflation rate due to rising rents and demand for expatriate labor. Kuwait should see a relatively moderate 4.3 percent price escalation.

In South Asia, inflation is expected to decelerate in 2008. Iran and Sri Lanka still have the highest inflation in the region, with rates of 17.0 percent and 15.0 percent, respectively, while the remaining countries in the region should experience single-digit rates of inflation. In East Asia, compared with 2007, the inflation rate will be higher in 2008 given the outlook for escalating oil and commodity prices. In China, escalating wages and real estate prices are of concern for 2008.

Average inflation rates in Latin American and Caribbean areas will rise from record lows in 2007. Increasing costs of energy and food will be felt across the region. Although Mexico and Brazil's rate of inflation will be relatively low, prices in Columbia are expected to be above the target range, and Venezuela will experience double-digit price increase rates as high consumption rates exacerbate shortages of consumer products.

Summary

Pressures from financial market turbulence, declines in the housing industry, and escalating oil and commodity prices will trigger a significant economic slowdown in the United States. The severity and duration of the slowdown in U.S. growth will cast a shadow on the outlook for the overall world economy in 2008. Continued, although slowed, economic growth is expected for China, India, and Asian emerging economies, while weak economic growth is forecast for Europe and the U.K. The Federal Reserve's ability to engineer a soft landing for the U.S. economy remains a major question. Its inability to do so may result in a recession in the U.S. and significantly impede the economic growth of the many other countries closely linked to U.S. economic health.

(1) Thomas Helbling, Peter Brezin, Ayhan Kose, Michael Kumhof, Doug Laxton, and Nikola Spatafora. "Decoupling the Train? Spillovers and Cycles in the Global Economy." International Monetary Fund. April 2007. World Economic Outlook. 05 Feb 2008

(2) Tim Callen. "IMF Forecasts Slower World Growth in 2008" International Monetary Fund. 17 Oct 2007. World Economic Outlook. 15 Jan 2008

(3) Thomas Helbling, Peter Brezin, Ayhan Kose, Michael Kumhof, Doug Laxton, and Nikola Spatafora. "Decoupling the Train? Spillovers and Cycles in the Global Economy." International Monetary Fund. April 2007. World Economic Outlook. 05 Feb 2008

(4) Hang Seng Bank Limited. "Mainland Chinas Economy Will Maintain Strong Momentum in 2008." TdcTrade.com. 01 Dec 2007. Economic Forum. 27 Dec 2007

(5) Ibid.

(6) Ibid.

(7) "India Growth to Moderate in 2008." Economic Times. 05 Dec 2007. Economy. 27 Dec 2007

(8) "Country Briefings: Japan." Economist.com. 27 Dec 2007. Country Briefings. 27 Dec 2007

(9) Shital Patel and Richard Berner, "Business Conditions: Another False Dawn?" MorganStanley.com. 12 Oct 2007. Global Economic Forum. 28 Dec 2007

(10) Ibid.

(11) Regional Economic Outlook: Europe--Strengthening Financial Systems. World Economic and Financial Surveys. Washington, D.C.: International Monetary Fund, 2007, p. 3.

(12) Regional Economic Outlook: Europe--Strengthening Financial Systems. World Economic and Financial Surveys. Washington, D.C.: International Monetary Fund, 2007, p. 4.

(13) United Nations Department of Economic and Social Affairs Expert Group Meeting on the World Economy (Project LINK), LINK Global Economic Outlook. November. (2007) 1-53 http://www.un.org/esa/policy/link/addisababa07/linkgeo_fal107%20final.pdf (accessed December 28, 2007). p. 13.

(14) United Nations Department of Economic and Social Affairs Expert Group Meeting on the World Economy (Project LINK), LINK Global Economic Outlook. November. (2007) 1-53 http://www.un.org/esa/policy/link/addisababa07/linkgeo_fall07%20final.pdf (accessed December 28, 2007). p. 14.

(15) Elaine Kurtenbach. "The 2008 World Outlook by Region." Boston Globe. 12 Dec 2007. World News. 28 Dec 2007

(16) United Nations Department of Economic and Social Affairs Expert Group Meeting on the World Economy (Project LINK), LINK Global Economic Outlook. November. (2007) 1-53 http://www.un.org/esa/policy/link/addisababa07/linkgeo_fall07%20final.pdf. (accessed December 28, 2007). pp. 21-22.

Dennis Wilson, Ph.D.,

Dr. Dennis R. Wilson is a Research Associate Professor for Applied Economics/Strategic Technology Research and Evaluation at the Sparks Bureau of Business and Economic Research. Dr. Wilson received his Ph.D. from the University of Memphis, his M.A. from the University of Akron, and his B.A. from Youngstown State University.

Dr. Wilson possesses both practical business experience in information technology and a formal education in economics and finance. He is a versatile, bottomline-focused, results-driven professional with over 25 years of experience. Dr. Wilson is an effective planner and communicator who has held positions with proven results, achieving both cost savings and cost avoidance in a wide range of industries from start-up companies to multi-billion-dollar public corporations.

Prior to joining the SBBER, Dr. Wilson held the position of Chief Information Officer for a $1.5 billion, NASDAQ-listed healthcare organization. In that role, he successfully led the merger of two IT organizations. Dr. Wilson has also held the position of Assistant V.P. of Information Systems for Guardsmark, Inc., various information technology-related management positions at Federal Express, and technical advisory positions at the Ohio Edison Company (First Energy). Table 1. Annual Percent Change Projected Growth, Selected Economies, 2008