In discussing the U.S. economy, I keep on seeing this refrain from Treasury Secretary Paulson (this one happens to be from the NYT)
“We have the strongest global economy I’ve seen in my business lifetime,” Treasury Secretary Henry M. Paulson Jr. said in Beijing last week. “We have a healthy economy in the U.S. So what is going on in my judgment is a reassessment of risk.”
I defintely have no disagreement with Paulson’s last sentence. The second to last sentence, I’ll leave to others to judge. Regarding the first sentence, I decided to see whether this assertion is reflected in the data. It is, at least for the overall world economy. From the IMF’s World Economic Outlook April 2007 database, augmented with the July 26 update:
Figure 1: Growth rates of real GDP for World (blue), and for Advanced Countries (red) (IMF definition). 2007 figures are IMF projections. Sources: IMF’s World Economic Outlook April 2007 database, augmented with the July 26 update.
Indeed, overall global growth, driven by China and India, is surging. However, advanced country growth (G-3, euro area, NICs) is much slower. The July revision relative to the April WEO is illuminating. US growth has been revised downward by 0.2 percentage points, while Chinese growth has been revised upward by 1.2 percentage points (India by 0.6).
So we have global growth surging, US growth being revised down. This phenomenon highlights the question of whether decoupling can occur (a topic taken up in Chapter 4 of the April WEO).
From a more casual perspective, I wonder if acceleration in growth of non-advanced country output is sufficient to keep up U.S. export growth such that the U.S. does not sink into recession. I think that’s an open question.
Parting shot: The previous graph was based on PPP/constant dollar calculations. In some respects, for economic activity across borders, world GDP might better be measured at market exchange rates. In that case one gets a slightly less rosy view of world GDP growth.
Figure 2: Growth rates of real GDP for World, evaluated at PPP (blue), and at market exchange rates (red). 2007 figures are IMF projections. Sources: IMF’s World Economic Outlook April 2007 database, augmented with the July 26 update.
Then global growth in 2000 was higher than it was in 2006, and than it is projected to be in 2007. Nonetheless, global growth looks pretty robust. Whether that means the same for the U.S economy remains to be seen.