US forecast revised up, Japan down

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The Economist Intelligence Unit (EIU), in its February Global Forecast, has revised up its forecast for US real GDP growth in 2005 to 3.3% from 3.1% on the back of stronger consumer demand than expected in the final months of 2004.

At the same time, it has slashed the Japan forecast to 0.8% from the previous 1.4%, as recent revisions to official GDP data indicate that the Japanese economy contracted during the last three quarters of 2004.

Growth in the euro-area 12 is expected to slow to 1.6% in 2005 from 1.9% in 2004. Similarly, growth in the EU25 is expected to slow to 2.0% from 2.4% in 2004.

“The pace of expansion in western Europe peaked in early 2004 and is now slowing. … Given the continued appreciation of the euro, an even slower performance is in prospect for 2005, although gradually strengthening domestic demand should allow a modest improvement in 2006,” said the EIU.

The dollar is expected to slide to USD 1.40 per euro by the end of 2005 and to average 1.36 for the year.

“The US economy still suffers from a lack of domestic savings and an excessive fiscal deficit, and these factors require the rest of the world to inject over US$600bn a year into the US economy.

“Even if the decline in the dollar comes to an end, the US currency is likely to remain weak for several years.”

Dated Brent crude oil prices have been revised up to average USD 37.50/barrel in 2005 and USD 33.56/b in 2006.

“This reflects our assumption that continued strong oil demand in China and other fast-growing emerging markets will limit the ability of oil consumers to rebuild their crude stocks,” said the EIU.

Fiona Mullen