In This Issue: The U.S. Economy Is Ailing But It's Still Only A Mild Cold: It appears the U.S. economy is going through a tough time but, despite a weak housing market, the outlook for the future remains solid. The trade deficit is shrinking, inflation and interest rates are stable, and the consumer continues to spend. However, there still might be some roadblocks ahead, including rising oil prices or a possible increase in bond yieldsWhen The U.S. Sneezes, The World Says, "Gesundheit": The world economy is
continuing to thrive despite high oil prices and widening credit spreads. Although the U.S. slowdown is much less critical than in the past, the U.S. dollar still is an important factor in determining the prosperity of many countries. However, the global economy seems ready to weather any storm. European Economic Forecast: The Central Banks' Tightening Cycle Nears Its End : European central banks seem ready to end their tightening cycle on the economy. The European Union has been experiencing strong growth of late and this is expected to continue into 2008, albeit at a slightly slower pace. Election Losses Increase Policy Risks In Japan: Japan's political landscape is expected to be extremely volatile in the months ahead. Due to heavy election losses, Prime Minister Abe's power has been compromised and he faces many considerable challenges ahead. This instability could adversely affect Japan's macroeconomy for the long term. Canada's Economy Defies Downbeat Expectations: The Canadian economy started off 2007 with a substantial spike in growth, significantly exceeding prior estimates. Housing demand, unlike that of the U.S., has remained strong and export growth has flourished. China's Economy Refuels In Mid-Air : The Chinese government has
recently been looking to put the brakes on the country's expanding economy. So far, it has not met with much success. The government is not expected to slam down hard on the brakes but there will be changes made for a slowdown in the economy. Signs Of A Soft Landing In India, As The Central Bank Wrestles With Inflation: The Reserve Bank of India has been implementing a monetary tightening cycle since late 2004 and, with few exceptions, has maintained that policy. However, with a change in the bank's currency management team and signs that inflation is beginning to moderate, the outlook for India's economy is good. Korea's Near-Term Economic Prospects Improving, But Structural Problems Remain : The near-term economic prospects for Korea have been steadily improving. It's main growth engines in recent years have been exports and domestic consumption. While they continue to perform well, there are some risks that, if realized, could increase economic volatility. Buried Treasure: Australia Extracts More Growth From The Mining Boom : Australia's mineral assets have contributed heavily to its continued economic expansion and, although the country's economy now faces various short- and mediumterm challenges, the strength of the mining sector looks likely to carry the weaker aspects of Australia's economy. Moderating Growth For ASEAN-4 On Shift To Domestic Drivers: The ASEAN-4 has been performing relatively well recently but there may be some clouds on the horizon. The countries are mainly driven by exports of commodities and manufactured goods. However, an anticipated weakness in global growth will likely put a damper on those contributions. Favorable Economic Horizon For Latin America Continues : Latin America continues to produce strong economic growth. Inflation, being higher than expected, has caused a number of central banks to respond with monetary tightening. However, the region has strong domestic demand and favorable trade performance. S&P Takes Rating Actions On Extendible ABCP Conduits Backed By U.S. Residential Assets: Standard & Poor's has taken rating actions on ABCP notes issued by U.S. ABCP conduits that exclusively finance U.S. residential mortgage assets. Standard & Poor's is closely monitoring the implications of mortgagerelated credit risk and related market liquidity for extendible ABCP conduits that finance U.S. residential mortgage assets in the form of whole-loans and RMBS. 158 Alt-A RMBS Classes Downgraded: Revised Surveillance Assumptions Cited : Standard & Poor's lowered its ratings on 158 classes of U.S. residential mortgage-backed securities backed by U.S. first-lien Alternative-A (Alt-A) mortgage collateral issued from the beginning of October 2005 through the end of December 2006 and affirmed all other outstanding ratings on Alt-A classes issued during that period.
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