Emerging nations growth to be stronger than industrial economies: Report

"Economic growth in many emerging economies, including Brazil, China, and India, is expected to be much stronger than that in most industrial economies, but that growth will boost US exports only moderately because the US sends only a modest share of its exports to those countries," the bi-partisan Congressional Budget Office (CBO) said in its budget and economic outlook update.

In its report released yesterday, the CBO projected that the Federal Government's budget deficit for this year would be USD 1.34 trillion. Though, the figure is slightly below last year's total, the agency warned that policymakers face daunting challenges in the years ahead in trying to return the US to fiscal sustainability. On international trade, the CBO said net US exports declined sharply in the first half of this year.

"The average pace of economic recovery among US trading partners, weighted by their shares of US exports, is expected to be weak, dampening demand for US exports. In the euro zone economic growth is hampered by various factors...," it said. Growth prospects for other industrial countries, such as Japan and the UK, are also weak, CBO concluded.
CBO said net exports are also likely to decline in the near term because of the increase in foreign demand for US financial assets stemming from the fiscal crisis in some European countries. "That increase in demand pushed up the net inflow of foreign capital and boosted the real exchange value of the dollar, which rose more than 7 per cent against the currencies of major US trading partners on a trade-weighted basis in the first half of this year before declining in July," it said.

A sustained appreciation of the dollar tends to dampen net exports by making US goods and services more expensive in foreign currencies and by making foreign goods and services cheaper in dollar terms, CBO said.

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