Dec. 29 (Bloomberg) -- The fastest U.S. economic expansion in three years and increasing confidence in Asia and Europe point to an acceleration of global growth to about 3 percent in 2004. ``The U.S. recovery is strong, China is booming, Japan is starting to grow and Europe is turning around,'' said James W. Paulsen, who oversees $110 billion as chief investment officer for Wells Capital Management in Minneapolis. ``For the first time in a long time, we're experiencing synchronized global growth.'' The Paris-based Organization for Economic Cooperation and Development projects that its 30 member countries, which include the U.S., Japan, Germany, France, Mexico and South Korea, will grow an average of 3 percent in 2004 and 3.1 percent in 2005, up from about 2 percent this year.
U.S. growth forecasts are being revised up almost weekly on the strength of interest rates that continue at 45-year lows; plans by companies from Ford Motor Co. to United Parcel Service Inc. to raise capital spending; and the prospect of $180 billion being pumped into the economy through more government spending and tax refunds, according to estimates by Merrill Lynch & Co. The latest survey by Bloomberg News found the median forecast for 63 economists was for U.S. growth in 2004 to rise to 4.4 percent, from 4.1 percent in mid-November. Economists expect the U.S. economy to expand by 3.1 percent this year, which would be the highest since the 3.7 percent growth in 2000.
Slow Recovery
To be certain, Germany and France are only starting to show signs of a rebound. The OECD estimates that Germany grew 0.2 percent in the third quarter, the lowest of the Group of Seven industrialized nations, and France 0.4 percent. The European Commission estimates the economy of the 12 nations that use the euro will grow 1.8 percent next year, after expanding 0.4 percent this year, a 10-year low. The Conference Board, a New York research group, raised its U.S. growth forecast for 2004 to 5.7 percent, from 5.2 percent. It predicted that Asia's economies will expand by an average of more than 4 percent and Europe by 2 percent, resulting in global growth of 3.5 percent, up from what it said was 3 percent in 2003. The U.S. is headed for the ``best year economically in the last 20 years,'' said Gail Fosler, chief economist for the organization, which has 2,500 corporate members in 60 countries. The U.S. economy grew by 7.2 percent in 1984.
`Bill Will Come Due'
The confidence in the U.S. contrasts with forecasts of a year ago, when some economists feared that growth would be blunted by soaring oil prices, the Iraq war and excess capacity. Economists such as Stephen S. Roach, chief economist for Morgan Stanley & Co., say U.S. financial markets may sour on record budget and current account deficits, sending the dollar down and prompting the Federal Reserve to raise interest rates. That would depress stock prices and slow growth.
``The bill will come due at some point next year,'' Roach said in a Dec. 9 televised interview with Bloomberg News. ``There's a good chance of a payback at some point by the middle of next year.'' David Malpass, chief global economist for Bear Stearns & Co., said the dollar's decline may revive inflation and threaten the recovery. The currency's value has fallen about 11 percent against those of the U.S.'s trading partners in the past 23 months. Still, those views are in the minority. The U.S. probably grew by 3.1 percent in 2003 after expanding at an 8.2 percent annual rate in the third quarter, which was the strongest growth since the last three months of 1983, the government says.
`Starting to Pick Up'
``We see the U.S. economy in the midst of a fairly strong comeback,'' said Alexander M. Cutler, chief executive officer of Eaton Corp., the world's second-largest maker of hydraulic equipment. While forecasts for Europe and Japan are for slower growth, they're in the right direction, said Gregory Mankiw, chairman of President George W. Bush's Council of Economic Advisers. ``The rest of the world is starting to pick up,'' Mankiw said in an interview. Factory orders gained in Germany in October and investor confidence rose to its highest level in 3 1/2 years. French manufacturers' confidence rose to a 2 1/2 year-high in December as faster growth in U.S. and Germany boosted exports. Asia's ``growth driver'' is China, whose economy may expand by as much as 10 percent in 2004 after a 9 percent gain this year, said Donald Straszheim, former Merrill Lynch chief economist who heads an economic-consulting firm in Santa Monica, California.
Warning on China
Japan will grow by less than 2 percent next year, while India's economy is likely to expand by between 6 percent and 7 percent, Straszheim said. Overall, Asia's economies will grow an average of 5 percent in 2004, he said. Hong Liang, an economist for Goldman Sachs Asia LLC in Hong Kong, predicted 9.5 percent growth for China next year. Other economists warn that China's growth may slow after the government raised banks' reserve requirements and curbed lending to some industries to prevent the economy from overheating. Chinese makers of goods from toasters to cars are adding capacity and bidding up prices of aluminum, steel and other raw materials. As supply begins to outpace demand and costs rise, economists say corporate failures may threaten a banking system where half the loans have already turned sour. ``A lot of companies may become unprofitable and we could see another wave of bad debts,'' Andy Xie, chief economist at Morgan Stanley Asia Ltd., said. Xie forecasts China's growth will slow to 7.8 percent next year from 8.5 percent in 2003. Chinese exports rose to $430 billion this year, Xinhua News Agency reported today, citing Commerce Vice Minister Yu Guangzhou. That's an increase of 32 percent, according to Bloomberg calculations. Imports rose 39 percent to $410 billion, narrowing the trade surplus by a third to $20 billion this year.
Honda Confident
Yet rising exports and increased investment and consumer spending will fuel faster growth in Asia even as central banks allow currencies to appreciate, economists say. Asia, excluding Japan, will grow 5.9 percent this year and 6.4 percent in 2004, J.P. Morgan Chase & Co. predicts. Goldman, Sachs & Co. says growth will accelerate to 8.1 percent in 2004 from an estimated 6.8 percent in 2003. In a sign of confidence, Honda Motor Co., Japan's second- largest automaker, said its global car sales will rise 10 percent to a record 3.2 million units in 2004 partly on China's demand. China's growth is ``unprecedented in auto history,'' Honda President Takeo Fukui said at an end-of-year briefing in Tokyo.
Tempering the outlook for European growth is the euro's gain of more than a fifth against the dollar in the past year, to a record $1.24 on Dec. 18. That makes exports from the region more expensive, hurting profit at companies such as mobile phone maker Nokia Oyj and Volkswagen AG, Europe's largest carmaker.
`Heaviest Burden'
``The euro is the heaviest burden,'' said Werner Marnette, chief executive officer of Norddeutsche Affinerie AG, Europe's largest copper producer. ``It holds out false hopes about a strength of the recovery that isn't there.'' Governments in the euro nations, under pressure to bolster domestic demand and reduce unemployment after two years of growth below 1 percent, agreed in November to allow Germany and France to breach EU budget limits for a third year in 2004, creating scope for tax cuts in the region's largest economies. German Chancellor Gerhard Schroeder on Dec. 15 agreed to cut taxes by 15 billion euros next year. France is lowering taxes in 2004 by a net 3.3 billion euros ($4.1 billion). Analysts such as Neal Soss, chief economist for Credit Suisse First Boston Corp. in New York, say the U.S. economy may slow toward the end of next year as the impact of the tax cuts wears off and mortgage re-financings decline. Wells Fargo's Paulsen disagrees, saying the refunds that taxpayers will receive in April and May will provide a stimulus.
The U.S. economy is ``brighter looking forward,'' Robert L. Bailey, chief executive officer of PMC-Sierra Inc., a California company that makes chips for telecommunications equipment, said in a televised interview with Bloomberg News on Dec. 11.
Three years ago, microchip makers were looking at ``a mountain of inventory,'' Bailey said. Now, inventories are low and customers ``have to order new products if they want to ship products themselves.'' //www.bloomberg.com