Analysis: US economic growth set to outpace that of world

Published Jan 27, 2015

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Simon Kennedy and Matthew Campbell Paris

FOR the world economy, it’s a case of US and them. That was the conclusion of investors, executives and policymakers as they ended their annual trip to Davos, Switzerland last week with the US poised to outpace world growth for the first time since 1999.

Celebrations were muted by questions over whether the strongest US expansion in 11 years will prove strong enough to power the global economy or whether it will be undone by slowing growth in Europe and China.

“The US can marginally help the world, but it cannot do it alone,” former deputy US treasury secretary Stuart Eizenstat said. He said there was still a 50 percent chance that the drag from the rest of the world would prove greater than the momentum from the US rally.

The multi-speed global economy is already threatening the US by driving the dollar to an 11-year high against the euro, with few in Davos willing to bet against further gains for the greenback.

“Right now the US seems to be the greatest place in the world to invest,” David Rubenstein, the co-founder of Carlyle Group, said. “The biggest problem in the US is that the dollar could become very… strong.”

US economic might was on display throughout the four-day retreat in the Swiss Alps as executives such as Facebook’s Sheryl Sandberg and PepsiCo’s Indra Nooyi roamed the conference hall and companies from Salesforce to McKinsey threw splashy parties.

The largest economy is one of the few global hotspots as Europe seeks to avoid deflation, China slows and falling commodity prices hurt countries such as Brazil and Canada. The International Monetary Fund (IMF) last week made the steepest cut to its global growth forecast in three years, reducing it to 3.5 percent this year from 3.8 percent previously.

“When you look around the globe, it’s just very hard to find a lot of big, bright lights on the economic horizon”, with the exception of the US, Michael Sabia, the chief executive of the Caisse de Dépôt et Placement du Quebec, said in Davos.

Sabia’s C$215 billion (R2 trillion) fund, which is Canada’s second-biggest pension manager, is betting on America with this month’s $2.2bn (R25bn) acquisition of a Manhattan skyscraper and last year’s participation in a consortium that bought PetSmart for about $8.3bn.

Economists at Deutsche Bank predict the US will contribute close to 18 percent to global growth this year, compared with the 11 percent for all other industrialised countries combined. The IMF forecasts that the American economy will grow 3.6 percent this year.

The concern in Davos was that the malaise in Europe and parts of Asia may end up undermining that strength.

“I’m a little more worried about the US in the next quarter or so,” Larry Fink, the chief executive of BlackRock, said.

He was among those to note the economy is already feeling the downside of its relative good fortune in the form of the rising dollar. – Bloomberg

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