Article today
in Business World notes a new OECD report that China will be the
world's largest exporter by 2010. The report anticipates GDP sustained
growth over this year and next of over 9% each year.

This is a phenomenal story, particularly taken together with the
increased energy prices that we are seeing now – and most of us expect
to continue through the end of this year and into the next.

But how much of that growth is predicated on the US consumer continuing to provide the demand drivers? A Forbes article just
posted posits that the US economy was already faltering before Katrina
hit and may slow to 2% as rising energy costs for heating hit the
consumer this winter.

They also say, “These extra energy costs mean that energy will
claim 9.5% of median family income in 2005, up from just 5% in 2003.
The median U.S. household will be forced to reduce its non-energy
consumption by nearly 5% of income compared with its 2003 patterns.”

If at the same time as this is happening the big auto companies, GM and
Ford, find themselves with large inventories of unsold vehicles in the
new year, there could be a lot of discounting in that business. That
may appear to be good for the consumer, but at some point as car
companies get more desparate to get rid of that inventory, may lead to
the front edge of deflation as prices chase customers.

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Posted in Main Page by Chris Gilbey No Comments Yet