NBK's global economic outlook (page 1 of 2)

UNITED STATES OF AMERICA

What better news can one get than the best quarterly growth in nearly two decades from the US? The economy shot out of the doldrums to grow during the third quarter at an annualized rate of 7.2%.

Spending by consumers, exports and residential construction, all registered sharp gains. But most significantly, business investment grew at an 11% annual rate, the fastest pace since the early 2000. Business investment has been the primary source of economic weakness since the economy slid into recession in 2001.

Of course, some economists are still questioning whether steady growth could continue once the short-term effects of pump-priming from tax cuts and low interest rates wear off, not to mention the mounting federal budget deficits. But there are always no sayers, and only time will tell who is right.

Meanwhile, the FED has left interest rates on hold once again. This has surprised no one. The markets were more interested to see if there was going to be any change in the statement that accompanied the decision.

Much to their relief, the statement was almost identical to those issued the previous two months, except for a slightly more upbeat assessment of the labor market, which the FED said is "stabilizing".

In September it had said the labor market was "weakening". The cautious stance form the FED even in the face of a steady flow of positive economic data confirms that they wish to see any remaining excess capacity used up and employment rate pick up.

It is also pertinent that the FED continues to remain more concerned about falling inflation rather than increasing inflation. This would suggest that although the FED could change its wordings and bias at some time, any rate increase is likely to be delayed until well into next year. However, the futures market are now pricing in a rate hike in May, which goes contrary to the continuing commitment from the FED to keep interest rates low for a "considerable period".

Other good news came in the form of a growth in durable goods orders for September. These orders, which cover goods that are expected to last for three years or more, rose by 0.8% from a 0.1% drop in August. It is important to note that the growth came despite a sharp decline in orders for defense-related capital goods.

The data is further evidence of a cyclical upswing in manufacturing. Consumer confidence reports from both the Conference Board and the University of Michigan moved up, reflecting the improvement in the jobs market.

With so much good news around, the upcoming holiday season is expected to provide succor to the retail business segment.


EURO-LAND (EUROPE)

If cold winds blow in the political corridors of Moscow, Western Europe shivers. The arrest of Russia's richest man, Mikhail Khodorkovsky, last week has probably dealt a substantial, if not lasting blow to one of the cornerstones of political stability in that country.

As the chief executive of Yukos, Russia's biggest oil group, Mr. M.K. has been closely identified with the capitalistic leaning former President Yeltsin, and his cronies who serve under current President Putin. With this development, Putin has sent stern warnings to political challengers across the board.

How is this relevant to the rest of Europe? Western Banks have significant exposure to Russia. There has been a growing interest among investors in that country, more so after an optimistic up rating of Russia's sovereign debt to investment grade earlier in October.