MercoPress. South Atlantic News Agency

The US dollar faces and “extended period of decline”

The US dollar is in the midst of an extended period of decline which is forecasted to continue until the third quarter of next year according to the US Manufacturers Alliance/MAPI quarterly forecast.

MAPI economist Cliff Waldman argues anticipates that the dollar will decline by 5% against the currencies of industrialized trading partners during the fourth quarter of 2007. Following that, the dollar is expected to fall by 5% during the first quarter of 2008 and by 3% during the second and third quarters of 2008, but will remain flat in the fourth quarter. "As the dollar undergoes an extended period of depreciation, trade will be an increasingly positive contributor to U.S. growth" said Waldman. However "in the short term, the dollar's decline generates inflation risks at home and economic growth risks for the economies of key trading partners". The Manufacturers Alliance report concord with those of the International Monetary Fund which said the US dollar was "overvalued". However this is contrary to the stance of European countries who consider the Euro is "overvalued" vis-à-vis the US dollar and this Friday will be discussing the issue in the framework of the G-7 Finance ministers' summit in Washington. On Thursday the Euro, created in 1999, hit an all time record of 1.43 US dollars and the Yen also appreciated significantly to 115 to the US currency. Waldman also points out that the risks emanating from the difficult set of circumstances in the U.S. economy have weakened the global outlook. "As financial and economic growth risks spread beyond U.S. borders, the near-term prospect for strong global growth has weakened significantly". The US Manufacturers Alliance report projects a slowdown in the annual growth of total U.S. goods and services exports, from 8.4% during 2006 to 6.8% during 2007. As the dollar depreciation takes hold, total U.S. export growth is forecast to accelerate to 9.1% during 2008. This is the result of a more competitively priced U.S. dollar overcoming weaker growth in industrialized and developing countries. Growth in non-U.S. industrialized countries, which include Canada, the Eurozone (plus Denmark, the United Kingdom, and Sweden), and Japan, is expected to slow from 2.8% on a compound annualized basis during the fourth quarter of 2007 to 2.6% during the first quarter of 2008. A modest slowdown is subsequently expected to 2.5% during the second quarter of 2008 and 2.4% during the second half of the year. Growth in the developing countries is projected to moderate from 5.2% during the second half of 2007 to 4.8% during the first half of 2008, with a slight acceleration to 4.9% during the last six months.