The global economy is experiencing a "double-shock" of a financial crisis plus inflationary pressures, but it is not yet in a world-wide recession, according to Zbyszko Tabernacki, CFA, executive managing director of the Country Intelligence Group for Global Insight.

Seven to 10 months ago, when clients asked what factors could bring the world into a recession, he named three developments that would need to take place consecutively: a major financial crisis in global financial institutions that would bring a credit crunch in all the countries affected, an oil shock such as the one we've just gone through, and a hard landing for China (which hasn't yet occurred).

When the figures on the first two elements are added, "We don't get recession figures," Tabernacki said. But the world is "not out of the woods yet."

One of the realities of today's global market is that it runs at two speeds: developed countries and those that are emerging, Tabernacki pointed out. Right now, the developed world is slowing down in growth, while the other half is running at growth levels averaging 3% to 5%. However, one of the great myths-that de-coupling (one country separating itself from others economically) can still occur-is starting to be disproved, he said. Eventually, the emerging markets will slow alongside developed areas.

As far as trade, in the last decade, trade flows shifted toward developing Asia and other countries, while the role of the U.S. as a market for other countries' exports declined. But 18% of the world's demand for consumer goods still comes from the U.S., so what happens here will continue to affect the world.

Inflationary pressures are high everywhere, but especially in emerging economies, and among the developed area, the Eurozone. Until the emerging markets slow, commodity prices probably won't weaken, Tabernacki said.

Some specific comments Tabernacki had on what's happening globally were:

    Canada. Canada's economy will see only 0.1% growth this year. The business investment boom now occurring will moderate. Industrial production will bottom out at the end of the year, and then begin climbing into 2009.
    Europe. The EU seems to be going through the same problems it had in 2002/ 2003, including too much export-led growth with one additional factor: financial pressures such as inflation, wage issues, tightened credit and oversupply of inventories.
    Middle East/North Africa. The countries' current economic boom will not falter this year, but rather intensify. However, the bust is coming-just not in 2008.
    China. One risk it faces going forward is that, aside from exports, the only driver of real growth is investments, so overbuilding remains a risk. China also needs to contain its double-digit inflation; and the economy will need to grow at least 6% to 7% a year just to accommodate people coming into the labor market.
    India. The country is not yet fully exposed to the global economy, but is looking inward, driven predominately by consumer spending. However, while the economy is less dependent on financial markets, there are indications of overheating, inflation and slowing growth.
Latin America. While people tend to clump all the countries in this area together, there are many little areas with different types of growth. Clearly Mexico's connection to the U.S. makes it most vulnerable to suffering from what happens in this nation while some of the countries in South America (Brazil in particular) are bright pockets of growth.

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