The global financial market outlook for 2008 can be described as steady in terms of underlying economic conditions but variable in terms of individual and isolated market conditions. To predict the complete global financial market outlook in 2008 with any accuracy involves compiling and assessing the meaning of financial and economic variables, and the almost infinite amount of interaction between those variables not to mention unforeseen future events. Keeping the previous point in mind is also useful to consider in understanding what is more likely to be a reasonable assessment of global financial markets in 2008 only i.e. a “reasonable assessment” is all that is realistically possible even with the best statistical analysis, financial modeling and forecasting. This article will first look a three broad scale influences on financial markets and then apply those three subject areas to create a general forecast.
A first step in determining global financial market performance is acquiring an understanding of influential economies such as the United States, China, Japan and the European Union. Since changes in smaller economies are less likely to have a major impact on the global financial outlook, these larger economies are the cornerstones of the global market. For example, the United States is experiencing a housing market problem, and high energy costs. If both these obstacles persist into 2008 they could slow economic growth. Some European economies such as Germany have trimmed forecasts in light of this potential “slowdown” in growth. China however is still experiencing tremendous growth in many industries making it a market driver for all the industries both domestically and internationally that supply that growth. In both cases, the United States can still grow but with more limitations and the Chinese economy is likely to continue to grow unless a major economic collapse or correction occurs. Thus, predicting global financial market outlook entails also knowing what economic variables are likely to have an impact in the coming year.
Industry includes both manufacturing and services within various sectors of an economy. Industrial variables that influence global financial market outlook include raw materials supply and demand, import and export statistics, industry specific sales, and capital investments in turn key operations, franchise networks or license chains. The “healthier” an industry appears in terms of its financial performance and prospects, the less probable it is for that industry to experience negative revenue forecasts for a given year. The more of these industries that have such outlooks across the large economies the more positive the industrial forecast would appear.
Political climate can also have an impact on the annual forecast. Things like tax policy, government expenditures, dominant political ideology, and industry specific research legislation can all have an affect on aspects of, if not all of a financial markets functioning. In other words, small changes at the Federal level can have a ripple affect that sends its influence all the way across a country. For example, a tax cut or tax break for middle class Americans would increase consumer discretionary spending potentially increasing corporate revenues.
If we use the above three variables to predict the 2008 global financial outlook we are faced with a somewhat mixed picture. Large economic blocks such as China, E.U. and North America went into 2008 experiencing slow to strong growth and expanding economies in South America assist in driving World growth.
As the World experiences broader economic growth and integration, problems in one major economy such as the U.S. are less likely to have as dramatic an impact on the global economy but still have a considerable impact. For example, political instability in the Middle East and Pakistan could affect oil prices further and potentially lead to wider conflict which could spur on a potential energy crisis.
Predicting recessions in the major economies of the World is key to knowing what the global forecast for a given year will be like as recessions have negative quarterly GDP for three consecutive quarters, this can take it’s numerical toll on global production figures. Since the U.S. is currently not in a recession as of early 2008 the full impact of a recession would might not be felt on financial markets until the later part of 2008 dependent on if and when the first news of such economic conditions emerges. Knowing if a recession is to occur involves compiling an aggregate of major industrial outputs and economic conditions to come up with either a positive or negative quarterly number. So far the U.S. has been expanding despite the drags of high oil prices and the credit problems brought on by the housing crisis and remedied by federal reserve monetary policy.
The 2008 global economic and financial climate looks generally stable but variable depending on the specific market. The World is expanding due to the dramatic improvements in communications allowing for expedited processes and operations worldwide; rapid industrial development in China has thrown South East Asia into a new and prosperous economic block with some momentum, and the oil funded emirates and Saudi Arabia has led to reinvestment back into the U.S. Economy and various financial ventures worldwide. However, inflationary pressures from the price of oil has slowed World economic growth worldwide.
While the global political environment could be more favorable, it could also be a lot worse. Conflicts have generally been contained in specific parts of the World and major economies such as North America, EU and Japan are generally well managed, resilient and monitored in a macro-economic making any potential problems minimal if not relatively short lived. Additionally, economic innovation and broadness of industrial sectors is an advantage among large well developed economies such as that of the United States. The future and future events are always unknown to some extent, but holding present conditions constant which they can’t be, the snapshot is generally to the upside in terms of global financial development.