Country risk poll March 2007: Global economy deals with worries amidst the prosperity

Research by Paul Pedzinski

Country risk results

Country risk methodology

THE GLOBAL ECONOMY has been in a sweet spot in recent years, and prospects for 2007 remain favourable. World GDP is on course to post its fourth consecutive year of roughly 5% real growth, the fastest in several decades. Globalization, technological innovation and adoption, and economic reforms are enabling strong growth with sustained low inflation. Combined with abundant liquidity and what are by historical standards low interest rates, this positive macroeconomic backdrop has boosted global asset prices.

Yet there is a lingering sense among policymakers, investors, business executives and average citizens that these good times won’t last. Geopolitical risks are an obvious source of concern, with the situation in Iraq continuing to deteriorate and US-Iranian tensions seemingly building. The threat of a spike in oil prices persists, despite the fact that crude costs are well off last year’s highs. Global warming has moved up the list of pressing issues, although it is unlikely to affect the near-term economic outlook. Some cite lingering global imbalances or the sharp increase in the use of financial derivatives and leverage in recent years as looming risks. Others view historically low costs of corporate credit and narrow emerging market sovereign spreads (versus US treasuries) as signs of dangerous complacency in global capital markets.