Transcripts

Could The Weak U.S. Economy Threaten Global Growth?

SUSIE GHARIB: The selling continued on Wall Street today, pushing the Dow below the 13,000 level for the first time since mid-August. Investor pessimism dominated trading on fresh concerns about the ripple effect of the credit crisis, high oil prices and the weak dollar. On top of that, worries are escalating about the slowing U.S. economy. As Suzanne Pratt reports, analysts fear that a weak U.S. economy could threaten global growth.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: It should come as no surprise that the U.S. economy is in the midst of a sharp slowdown. The housing recession, coupled with fallout from the credit crunch, have caused many prognosticators to slash growth forecasts for the current quarter, as well as 2008. And now it appears that America's problems could cause global economic growth to slow next year, too. Bear Stearns chief economist David Malpass explains that when the U.S. economy hits a speed bump, the rest of the world is in for a rough ride.

DAVID MALPASS, CHIEF ECONOMIST, BEAR STEARNS: The U.S. is still the dominant, huge economy in the world, much bigger than China or India and as big as all of Europe combined. And so as we slow down, that does have impact on other countries, in terms of their exports and in terms of the new investment that people want to make in those countries as well.

PRATT: The International Monetary Fund's world economic outlook, which was released in October, predicts world growth will slow to 4.8 percent in 2008, from an estimated 5.2 percent this year and 5.4 percent in 2006. But some experts believe the slowdown in global growth could deepen next year, as it looks like financial market strains might continue for many months. Economists predict Europe and the UK will feel the effects first, while Asia may take a little longer.

MALPASS: The mechanism is that U.S. orders, which have already gone out for let's say the Christmas season, will either get canceled or they'll back up in inventories in the U.S. and then Asia will begin to feel it both from the export side and from the new investment side.

PRATT: Other experts are less concerned about what America's economic problems are doing to economies worldwide. They say the major emerging markets of China and India have become engines of world growth. Even with the sub-prime fallout, the IMF still puts 2008 growth for China at 10 percent and India's at more than 8 percent, whereas growth for Europe, Japan and the U.S. is projected at about 2 percent. And economist Cary Leahey says if the global economy stalls, the U.S. could find itself in recession.

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: If you say to yourself we have high oil prices. We have a housing recession and we have credit markets in disarray and you then add a fourth that global growth falters, then you really have a problem.

PRATT: On the other hand, the global economy is far more resilient today than it was in the past. If the U.S. economy falls into recession next year, experts say it could be a major setback for global growth, but it will not result in a global collapse. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.