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Global growth to slow to around 3.9% in 2006, according to UBS
Speaking at the sixth UBS Greater China Conference in Shanghai, Larry HATHEWAY, Global Chief Economist and Global Head of Asset Allocation at UBS, forecast a slowdown in global growth to around 3.9% in 2006 from a growth rate of around 4.4% in 2005.
"The gradual and cumulative tightening of US monetary policy, combined with the removal of the US hurricane Katrina-related fiscal support from the second quarter of 2006, are the principal factors for the projected slowdown.
"In an environment where the US personal savings ratio is at a record low and real household incomes have been squeezed by high fuel costs and low growth in nominal incomes, US consumption should slow somewhat as 2006 progresses. The lagged effects of Fed tightening are also likely to take their toll, most notably on the housing sector and, by extension, on consumer spending. In our view, the removal of US consumer support will be sufficient to slow the pace of global aggregate demand growth during the course of the next 12 months," he added.
"However, it is also worth noting that global indicators are in positive territory and monetary and financial conditions remain accommodative. Corporate profitability is at, or close to, record highs, suggesting further scope for contributions from business investment and employment.
"In Asia, Chinese growth has firmed, bolstered by firmer domestic demand of late while physical activity and construction indices have perked up. However, domestic output growth is likely to slow but is more the consequence of a re-acceleration of import demand rather than a slowdown in domestic activity.
"However, the Japanese economy may offer more support to the world economy than we had previously envisaged. Last month, we lifted our Japanese GDP (Gross Domestic Product) forecast for 2006 to 2.3% from 1.5%, reflecting the solid performance of the domestic economy and, in particular, the strength of profitability, capital spending and exports. A weaker-than-expected yen has also helped ease overall monetary conditions. Equally, consumption growth (particularly among the elderly) has outperformed our expectations.
"Combined with stronger demand from Europe and China, additional growth momentum in Japan could feed through more forcefully into higher world trade, suggesting upside risk to our 2006 global GDP forecast," said Hatheway.
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Shanghai, 17 January 2006
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