In the News - March 2008
Economist sees big movement in economy; global strengthening after 2011
LITTLE ROCK - The global economy will see strengthening after 2011 as America
enters what could be "an amazingly dynamic economic period, a period unlike any
ever experienced in world history," says Dr. Bobby Coats, an extension
agricultural policy analyst with the University of Arkansas Division of
Agriculture.
"I surely thought we were going to talk ourselves into a recession
for a while," he said. "Consumer confidence is of utmost importance to
domestic growth," Coats said. "I was afraid all the doom and gloom
discussions would erode consumer confidence to the point consumers and
businesses reduced spending and put the U.S. economy in danger of slipping into
a recession."
While a recession is possible, Coats expects the next year and half to show
more domestic and global strength than weakness because of financial stimulus
packages, continued worldwide growth and momentum.
Coats' crystal ball indicates economic weakness in 2010 and 2011, which would
then be followed by increasingly strong global growth.
One problem Coats worries about is inflation caused by stimulus packages
designed to spur the economy.
"In the current economic setting, the financial stimulus will be
inflationary, so everyone should consider how to manage in a world of
faster-than-normal rising prices. Inflation isn't good, but the alternative -
deflation or falling prices - isn't really an option."
Coats said it appears that the sub-prime home loan crisis will be managed,
but at a cost. He believes that credit problems will become an increasing
problem that spills over into car loans and credit cards.
The recipe for a solution to the growing credit problem will take many
ingredients: time, sound business practices, continued economic stimulus,
available and reasonably priced credit, consumer confidence and production or
manufacturing job growth, according to Coats.
In addition, he said, consumer savings is going to have to take priority over
consumer consumption.
U.S. agriculture has benefited in this new economic situation.
Strong global demand for agricultural commodities, continued dollar weakness,
and an expanding renewable energy market has created a growing demand for all
major U.S. commodity groups. Those factors coupled with inflationary
expectations offer a reason why agricultural commodity prices are on a tear, he
said.
But, he observes that farmers' costs are up about 50 percent since 2002.
"Beyond their obvious value to society, food, feed and fiber commodities, as
an investment, are an increasingly valued asset to large and small investors.
This increases speculation and price volatility," he said.
"When too much money is chasing too few commodities, prices can be driven to
extreme historic levels. We see this today and the euphoria has yet to climax,"
Coats noted. "U.S. agricultural exports are expected to reach $101 billion in
2008 up from $81.9 billion in 2007."
Row crop commodity prices appear to have continuing price strength, so
producers should continue to enjoy pricing opportunities for their 2008 and 2009
crops, according to Coats. Live cattle, feeder cattle and hogs should see real
price improvements in the second half of this year.
Meanwhile, the high price of oil continues to cause sticker shock in
Americans. But it's sending a positive message about the global economy,
according to Coats.
"The price of oil is telling us that global financial stimulus to date is
sustaining reasonably strong global growth and momentum and the demand for oil.
Continued strong global demand, a weak dollar and risk and uncertainty about a
number of supply related issues are all factors that continue to give oil prices
support."
The Cooperative Extension Service is part of the U of A Division of
Agriculture.
March 7, 2008
Media Contact: Lamar James
Extension Communications Specialist
U of A Division of Agriculture
Cooperative Extension Service
(501) 671-2187 or (501) 753-0207
ljames@uaex.edu
Related Links
|
