Mesirow Financial Chief Economist Diane Swonk Releases Latest Commentary: Decelerating Growth/Accelerating Inflation: A Global Economic Quagmire

CHICAGO, July 8, 2008 — "The general sense is that the world economy is already in the process of slowing, even among the emerging markets of Asia. The only exceptions are parts of the Middle East, which continue to benefit from skyrocketing energy prices," says Diane Swonk, chief economist of Mesirow Financial, in her July issue of Themes on the Economy.

"The arguments for a 'decoupling' or major divergence in growth between the U.S. and its major trading partners, in particular, are being discredited. Europe's economic slowdown is lagging the U.S. one by two-to-three quarters. Moreover, that slowdown will eventually affect the emerging markets of Asia, as much of Asia has shifted its reliance on exports from the U.S. to Europe. Indeed, one could argue that our economies are now more, rather than less, connected via trade and financial flows than in the past," notes Swonk.

In her July newsletter, Swonk highlights topics discussed by worldwide economists, who attended the 2008 International Conference of Commercial Bank Economists, June 23-27 in Melbourne, and risks to the forecast, which include:

• Global real estate boom. It is only a matter of time before rising rates and a slowdown in growth abroad trigger a bust in other countries. The housing markets of the U.K. and Spain are already suffering and playing a drag on overall economic activity.
• Europe is widely expected to feel the secondary effects of the credit crisis, although with a lag. European banks were among the most aggressive foreign buyers of U.S. mortgage debt in recent years, but because of different accounting rules, have not had to write much of that debt down.
• Japan, which surged in the first quarter, is expected to come to a virtual standstill during the balance of the year-exports are the primary reason behind the weakness.
• Denmark has already entered a statistical recession and the risk is high that the U.K. and Spain could soon follow. Germany is holding its own, but it is unclear how long that can last given the strength in the Euro and its dependence on exports.
• The only true optimists are the developing nations, which expect to slow but continue to post quite substantial gains. This includes everyone from developing Asia (with the exception of Vietnam) to Central Europe (with the exception of Hungary) to much of Latin America.

A Medium-Term Turnaround?
"Over the next two-to-five years, the outlook for the U.S. relative to the rest of world is somewhat better, with an overwhelming majority of foreign economists expecting the U.S. to regain its title as the "fastest growing industrial block. It is unclear, however, what that accomplishment really means. Growth in the developing world is expected to continue outperforming growth in the developed world over the next decade or so, predicts Swonk."

"On net, the world appears to be entering a slower phase of growth with some of the more developed economies slipping into recession. The developing economies are expected to hold up better, but not fully escape the troubles of the developing world."

The July issue of Themes on the Economy as well as archived issues can be found at www.mesirowfinancial.com.

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with $32.2 billion in assets under management and more than 1,100 employees in 30 locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals and was named one of Chicago's Best Places to Work by Crain's Chicago Business in 2008. For the fiscal year ended March 31, 2008, the firm posted $490 million in revenue (unaudited), with more than $245 million in capital. For more information about Mesirow Financial, visit its Web site at www.mesirowfinancial.com.

For more information, contact: Diane Swonk, Mesirow Financial, 312.595.7122, or Olga Camargo, Mesirow Financial, 312.595.7128.

 

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