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To be sure, there are a lot of bearish views out there. In particular, there's continued concern about the dollar, the U.S. trade deficit, U.S. consumer resilience, the outlook for U.S. business investment, Japan's financial stability, and Europe's political evolution. But the picture has brightened significantly from 2000 and 2001, when fears over macro-economic damage to the global economy were warranted. At the time, the concern was that the combination of the ever-strengthening dollar, the tolerance of the oil-price spike, the U.S. theory of keeping tax rates very high to pay off the national debt, and Japan's deflation spiral was destined to cause a collapse in the global economy. Today, in contrast, we have a much better macro-economic framework:
The recent macro-economic glitches — heightened expectations for interest-rate hikes, the oil-price spike, and the April-May disappointment as the U.S. economic outlook — were temporary setbacks. Particularly because of currency stability (which is a very powerful platform for future earnings growth) we can look forward to growth in the second half, and for a good time after that. — Mr. Malpass is the Chief International Economist for Bear Stearns.
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ooks
like the world economy is moving into an economic "sweet spot."
The difficult phase — the aftermath of deflation — is winding
down, with many sectors now having rationalized the new, lower value of
the U.S. dollar. And so, what awaits us is a pro-growth period of price-level
stability that will allow a better allocation of world capital.
