International Economic Outlook

INTERNATIONAL ECONOMIC OUTLOOK By Evangelos Otto Simos DOLLAR’S STRENGTHS AND OIL’S FALL TRIGGERS END OF STAGFLATION I. Global assessment and outlook Led by unsustainable demand growth from unreasonable expansionary monetary policies and a speculative fall in the dollar driven by expectations of a U.S. recession amid the bursting of the housing bubble, the emerged worldwide inflation shock has set off a stagflation phase for the industrial countries in the global business cycle. Evidence shows that global inflation will peak in the third quarter of this year and then it is expected to gradually moderate over the forecast horizon, as the factors that spawn current worldwide economic conditions are already in a reversal process. Our first quarter of 2008 global forecast released February 2008 noted, “The dollar will firmly enter an upward trend that will continue in 2009.” The bursting of the euro bubble has begun. After reaching a peak on April 22, 2008, at a rate of 1.601 against the U.S. dollar, the euro has fallen 8.3 percent by the end of August to a rate of 1.468. We continue to forecast a fall in the euro and a probability of 45 percent for the euro to reach parity ...