Beyond 2004, questions linger about the impact of the massive budget deficits created in the last two years from increased spending and reduced tax revenues. These deficits threaten inflation down the road, which would trigger higher interest rates. At the extreme, the US could be headed for an inflationary cycle like the one that occurred in the early 1980s when the Fed raised short-term interest rates above 20 percent to choke off inflation, throwing the economy into double dip recessions. To avoid this scenario, either taxes will need to increase, or the US will need to rethink the role of government with an eye toward reducing or eliminating many of the programs that have been in place since the Roosevelt administration.
In 2003, Canada’s economy demonstrated remarkable resilience. Diseases (SARS and mad cow disease), droughts, forest fires, floods, hurricanes and power outages provided unprecedented adversity. Adding strain to Canada’s export-reliant economy, the Canadian dollar unexpectedly surged from US $0.63 to US $0.76. Despite these challenges, GDP grew by 2 percent in 2003, and the federal government recorded a fiscal surplus for the seventh consecutive year. For 2004, economists predict the Canadian economy to grow at a rate of 3.0 to 3.5 percent. Interest rates are projected to remain low with the Canadian dollar stabilizing in the US $0.76 to $0.78 range. Exports to the US should grow in 2004 as the US economic recovery offsets the impact of a higher Canadian dollar.
On the heels of the US economic rebound, most major economies in Latin America slowly pulled out of recession during the second half of 2003, generating an audible sigh of relief. The bright spot is Chile, which has been the best performing major economy in Latin America since 2000. house valuations. Brazil and Mexico, the region’s two largest economies, grew slowly in 2003 but made some progress on legislative reforms that would benefit their respective economies. By restructuring its debt with the International Monetary Fund (IMF).
Argentina dodged economic collapse. Venezuela, the third largest crude oil producing OPEC member, was the most volatile South American economy, beset by political scandal and civil unrest. The year ahead appears encouraging with GDP growth at healthy levels. The longer-term outlook is bright as the US economy ramps up and prospects improve for free trade.