Global economic growth is likely to moderate this year after a strong performance last year, as higher interest rates take their toll on the US and a weak dollar hurts exporters around the globe, a survey said.

The Reuters survey of 26 strategists at major banks showed global growth at 3.8 per cent this year and 3.7 per cent in 2006.
“World growth is expected to moderate during this year and 2006 as rising interest rates curb growth in the US, continued dollar decline tempers growth in Europe and Japan, and lower commodity prices reduce growth in emerging markets,” said Michael Woolfolk at Bank of New York in New York.
The median view for 2005 global growth was slightly lower than the 3.9 forecast in the last poll, in July.
The US Federal Reserve has raised the cost of borrowing by 125 basis points to 2.25 per cent since the summer and is expected to continue tightening in the coming months, thus putting the brakes on the world’s largest economy.
“Boosts to (US) GDP from monetary and fiscal policy are fading or, in the case of monetary policy, reversing. And of course an economy cannot forever grow above potential,” said Klaus Baader at Lehman Brothers in London.
Strategists said US growth was likely to slow to its long-term trend levels of around 3 per cent to 3.5 per cent.
China, the world’s number two economy by purchasing power parity (PPP), is also expected to slow further this year but looks to have secured a soft landing from the headspinning growth of recent years.
Lacklustre consumer spending and a strong euro have clipped the pace of the recovery in the euro zone, and strategists do not expect to see much of an improvement in growth this year.
“The euro zone remains weak, saddled with an expensive currency, and limited recovery in domestic demand,” said Rob Carnell at ING Financial Markets in London.
Given the sluggish domestic demand, the euro zone has been dependent on exports to drive its economy. Thus it, along with other exporters, is likely to feel the pinch from softer growth in key markets such as China and the US.
“The world trade cycle has now turned down, and given our expectation that US growth in particular — but also Chinese growth — slows in 2005, that will be the main reason for the global slowdown,” said Janet Henry at HSBC in London.
International Monetary Fund (IMF) forecasts, last updated in September, saw growth of 5 per cent last year and 4.3 per cent this year. But Jose Alzola at Citigroup in London said it was misleading to look at the full year figures as the 2004 number combined a very strong start to the year with softer growth in the final months.
“Really the story is that growth in the two main engines — which are the US and China — slowed down during the second half of 2004 but it is not going to slow down further,” he said. <