The first issue is a possible recession in the U.S. There is better than a 50 percent of a recession considering the subprime mortgage crisis, and the whole housing business; the credit crunch in the banks and financial institutions because of the losses they have suffered and will continue to suffer in mortgages; the weak condition of the companies that insure bonds; the consumer crisis that is beginning: the delinquency of credit cards and loans to buy cars; the reduction of consumer spending due to the loss or fall of prices of their houses and the oil, gasoline and food price increases.
If the U.S. suffers a recession, what will the impact be on the rest of the world? Zhou Xiaochuan, governor of the Central Bank of China, recently warned that a drop in U.S. demand could drag down Chinese exports and make 2008 a turning point for the economy. The Economist Intelligence Unit thinks Latin America would be affected. European countries and Japan would also be affected. Most of Asia probably would hold up better, but all in all, world trade and growth would suffer.
The second issue is the price of oil. Two important forecasts were made during 2007: JPMorgan said the price of oil would fall to $60 per barrel, while Goldman Sachs said it could rise to $100. It recently approached $100. Why? The market is tight. Some blame the speculators, while others mention geopolitical tensions and the current depreciation of the U.S. dollar.