Global and U.S. Economy Essay

After a low-key performance for about three consecutive years, prospects for growth of the world economy significantly improved in 2004. This improvement in the economic outlook was widespread across the nations of the world. However, differences in economic robustness among regions and countries persisted. In the preceding two years, macroeconomic policies had been crucial for stimulating the global recovery, but the emerging challenge was for policies to simultaneously sustain robust growth and maintain stable inflation (United Nations, Economic and Social Development Affairs, â€Å"2004† 3) Following a temporary slowdown in mid-2004, global GDP growth picked up through the first quarter of 2005, with robust services sector output more than offsetting slowing global growth in manufacturing and trade. In the second quarter, however, in part reflecting the impact of higher oil prices, signs of slowness emerged, with leading indicators turning downward and business confidence weakening in most major countries. Subsequently, while global manufacturing and trade were strengthened, and leading indicators picked up, the continuing rise in crude oil and refined product prices, which was exacerbated by the catastrophic effects of Hurricane Katrina, acted as a major downward force (World Economic Outlook, â€Å"2005† 1). Nonetheless, the resilience of the global economy in 2005 continued to exceed expectations. Despite higher oil prices and natural disasters, activity in the third quarter of 2005 was in fact stronger than earlier projected, particularly among emerging market countries; global GDP growth was estimated at 4.8 percent, 0. 5 percentage point higher than projected previously (World Economic Outlook, â€Å"2006†1). Global industrial production has gone up from mid-2005; the services sector today remains strong; global trade growth is at a high level; consumer confidence and labor market conditions are on an optimistic note; and forward-looking indicators such as business confidence have risen. Asia is forging ahead, with China enjoying double-digit expansion and India growing very rapidly as well. Growth in most emerging and developing countries remains solid, with a marked buoyancy of activity in China, India, and Russia. After years of deflationary weakness, Japan has embarked on a new path, with personal consumption and labor income joining exports and business investment as the main drivers of growth. Japanese expansion is well established. In continental Europe, activity weakened again late last year, partly reacting to rising oil prices, but accelerated in early 2006 (Organization for Economic Co-operation and Development). There are signs of a more sustained recovery in the Euro area, although domestic demand growth remains subdued in that region. The impressive performance of the global economy in recent years is, truly, a cause for celebration. Accelerated growth is vital prerequisite for poverty reduction in developing countries. Without sustained and rapid growth, lasting poverty reduction will prove elusive (Krueger). Though hurricanes had a damaging impact in the United States, it was but a transient one, and the activity was already bouncing back early in 2006. Among industrial countries, the United States remains the main engine of growth. In 2005, the U. S. economy expanded by 3.5%, a rate slightly above potential growth for the U. S. economy, leading to a decline in the unemployment rate from 5. 4% in the fourth quarter of 2004 to 4. 9% in the final quarter of 2005. The economy added nearly two million jobs in 2005, averaging 165,000 jobs per month. Yet the economy experienced a substantial swing in economic activity beginning in the third quarter of last year. Real gross domestic product (GDP) expanded by 4. 1% in the third quarter, slowed drastically to 1. 7% in the fourth quarter, and then bounced back up to 5. 6% in the first quarter of 2006. (Strauss and Engel).