Our economics expert, David Mayfield, throws the bones and predicts another wobbly year for the US economy and wonders whether the emerging markets can pick up the slack as they did in 2007.

2007 was a phenomenal year for emerging markets, with growth in such countries far outperforming their established counterparts. With the US economy showing no signs of immediate recovery, there is every chance the same will be true for 2008.

The global expansion of 5,2% was propelled by the robust growth in China (11,5%), India (9%) and Russia (8,5%), performances that compensated for poor growth in the major economies, US (1,6%), Eurozone (2,5%) and Japan (2%).

Talk for much of 2007 was that the global economy was being dragged into a recession by a faltering Dollar, but it is now more probable that US and advanced economies are likely to avoid recession in 2008. But with the Dollar far from settled, much remains to be seen. The crucial question facing the global economy in 2008 is two-fold: Can global growth continue to be driven by emerging economies? And when, if at all, will US weakness begin to affect the emerging markets.

Expansion will continue to rely largely on powerful growth in China, India and Russia along with other emerging markets. But if it’s to be wine and roses for the up-and-coming currencies, it’s another year of dry Salticracks for the Dollar, with the US mortgage market expected to deteriorate further due to tighter credit.

The reasons for the predicted continuance of US economic regression are numerous: Apart from a notable decline in consumer confidence, there is the climbing oil price, falling house prices, and tighter under-writing standards for both home and consumer loans, meaning a likely restraint on spending. The economic slowdown will mean a moderate increase in unemployment, from 4,7% in 2007 to a predicted 4,9% in 2008.

There is a light at the end of the tunnel. The baseline forecast expects the US economy to rally in late 2009 as when the housing sector recovers and a relatively weak dollar invigorates exports.

But it will get worse before it gets better, says the IMF. In spite of rampant growth in key developing economies, included among which – though further down the list – is our own, the insecure Dollar and its fellow established currencies will hamper more than help. Sensational growth in China, India and Russia will go some way to offsetting weak performances from the US, UK, Japan and other advanced economies, but The IMF warns that global growth may well fall below 3,5% in 2008.

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