The US economy is in the danger zone. GDP growth in the fourth quarter of 2007 (0.0pc) and first half of 2008 (0.8pc in the first quarter and 1.8pc in the second quarter) is expected to be very weak.
This will make the United States extremely vulnerable to another shock. Furthermore, it is unlikely that the rest of the world will be able to shrug off the expected sharp deceleration in spending by American households.
Global Insight currently predicts that world growth will be 3.3pc in 2008, compared with 3.7pc this year. With the potential for housing crunches in some European economies and a post-Olympics slowdown (or even bust) in China, the risks for the global economy are now overwhelmingly on the downside.
US growth will be the weakest since 2002, and possibly since the last recession
Growth in 2002 was a meager 1.6pc, as the economy struggled to recover from the twin shocks of the high-tech bust and the 9/11 terrorist attacks. Growth next year will be almost as low (1.9pc), and there is a mounting risk that it could be lower.
The main culprit is housing, which will cut real GDP growth by 1 percentage point during the year. However, consumer spending growth is also predicted to decelerate from 2.8pc in 2007 to 1.7pc in 2008. Moreover, capital spending is expected to increase a lackluster 2.6pc.
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