Introduction: In early 2003, the U.S. economy was not doing very well. Listen as Neil Mackinnon presents his take on this situation, and pay special attention to the role of international economic factors.
04:40:36 JOHN BERMAN, ABC NEWS
(OC) Joining us now from London to talk about the global economy and stock markets is Neil MacKinnon, Chief Economist for the ECU Group. Good morning, Neil.
04:40:44 NEIL MACKINNON, CHIEF ECONOMIST ECU GROUP
Good morning.
04:40:45 JOHN BERMAN
(OC) I want to start by talking about the depressing dollar. Last year was the weakest year for the dollar since 1987. This year things haven't started out that much better. What's going on here?
04:40:55 NEIL MACKINNON
Well, I think that for many investors, what's a key worry for the US dollar right now is the emergence of the so-called twin deficits, a worsening current account deficit, a budget surplus that is now being transformed into a budget deficit. And those with long memories will remember the mid 80's when there was a similar situation and when the, the dollar nose-dived on the foreign exchanges.
04:41:18 JOHN BERMAN
(OC) Now what is the effect on the US economy of a weak dollar and a persistently weaker dollar for that matter?
04:41:24 NEIL MACKINNON
Well, certainly a weaker dollar will help improve competitiveness. It should bolster American exports overseas. But, of course, with the Euro zone economies and Japan pretty weak, there won't much be in the way of any demand. I think one of the key factors that is certainly a worry at the present time is that given the worsening current account deficit, America does need foreign investors to finance that. And if there was any perceived change in US dollar policy on the part of the, the US treasury, then that could make funding of the current account deficit that much more difficult.
04:42:00 JOHN BERMAN
(OC) The G-7 economic powerhouses sit down together later this month.
What's on their plate this time?
04:42:05 NEIL MACKINNON
Well, I think top of the agenda will certainly be the outlook for the global economy. Certainly, I think the world economy is very reliant on America leading the way, here. There are tentative signs that the economy is turning around. That's good news. But I don't think there's going to be an exceptionally strong recovery. I think there is more concern about the absence of any recovery in Japan. A stronger Yen will certainly make deflation pressures worse. In the Euro zone economies, the European Central Bank continues to drag its feet on bringing interest rates down to growth friendly levels, and certainly in Germany, the economic situation remains poor.
04:42:43 JOHN BERMAN
(OC) Great. Neil MacKinnon of the ECU Group, thank you very much for
joining us.
(OC) You can get the latest business news any time at our web site,
moneyscope.com. More news coming up.
GRAPHICS: MONEYSCOPE.COM
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