Asia Fuels Hopes and Fears

The Fed’s aggressive moves opened a rather long period of deceptive calm in which the global economy appeared resilient with regard to the crisis. It was the calm in the eye of the storm. The U.S. economy was losing steam, but in a way which seemed broadly in line with a normal cyclical slowdown, albeit with downside risks from the stress in the banking sector and the corresponding threat that the credit supply would be constrained. As we saw above, even the Fed considered a recession as a risk, not a foregone conclusion. European growth remained healthy, at least by the moderate standards of recent European history; the Eurozone was poised to grow faster than the United States for the second year in a row, posting real GDP growth of 2.8 percent for the full year 2007, well ahead of the U.S.’s relatively meager 2.1 percent. And, most importantly, Asia continued to enjoy extremely robust growth, with China leading the charge. By the end of the year, the region.’s growth would clock in at a record 10.6 percent, with China at a breath-taking 13.0 percent and India at 9.3 percent.