In This Issue: Global Economic Outlook: All Systems Go For A Fourth Year Of Solid Growth: The world economy is poised to maintain a healthy rate of expansion in 2007, with an unprecedented fourth consecutive year of more than 4% growth likely, in large part because of China, India, and the U.S. Of course, any prolonged deceleration in the U.S., which accounts for more than one-fifth of global GDP and is the world's biggest importer, would naturally curb growth globally.U.S. Economic Forecast: Where The Money Goes: Standard & Poor's lowered its estimate for GDP growth in 2007 to 2.4% from 2.6%, about where it was two months ago, due to the downward revision to fourth-quarter GDP to 2.2% from the original 3.5%. While the consumer continues to hold his own, he is spending faster than he is earning. One problem for the Federal Reserve is that the consumer also is earning pretty fast. European Economic Forecast: Rising Consumer Demand And Buoyant Business Investment Drive Growth In 2007-2008: Europe's economic growth in 2006 turned out to be even stronger than Standard & Poor's initially expected, with GDP growth reaching an estimated 2.7% in the Eurozone, and the U.K. economy growing at a similar rate. Although no final data is available for the fourth quarter of 2006 as yet, estimates suggest that the Eurozone economy finished the year on a high, with GDP expanding 3% in real terms (3.4% in the U.K.). For Japan, The Deflation Threat Lingers Despite Robust Economic Growth: Japan faces an interesting conundrum. Despite an inflation rate still close to zero, a slow recovery of domestic consumption, and an expected moderation in investment, the Bank of Japan (BOJ) raised its target uncollateralized overnight call rate by 25 basis points to 0.50%. BOJ's primary reason for the rate rise is to restore normal market mechanisms and increase the effectiveness of its monetary policy. For Canada, 2007 Economic Growth Should Be Cooler-But Hardly In A Deep Freeze: The outlook for the Canadian economy in 2007 is mixed and GDP growth is expected to slow to 2.1% following growth of 2.7% in 2006. Foreign demand for Canadian goods and services appears poised to rebound as conditions improve in Canada's key export markets, notably the U.S. Domestically, Canada's business sector is in the middle of an upswing in the investment cycle and this will support GDP growth in 2007. China's Hot Growth Should Cool Slightly In 2007: China's economy grew at a double-digit rate (10.7%) for the fourth consecutive year in 2006. Looking forward to 2007, Standard & Poor's forecasts real GDP in China to rise by 9.5%. The expectation of a slight decline in growth momentum this year mainly reflects a deceleration in capital-spending increases. The associated slowdown in import growth- together with the continued robustness of global demand for Chinese exports-could widen the trade surplus still further. India: Robust Growth, With A Little Overheating: India continued to shine for the fourth consecutive year, growing at an average of 8.6% per year in the period. This robustness is driven by all sectors of the economy. Further expansion in the global economy and the momentum of integration bolstered external demand for Indian goods and services, despite a rising Indian rupee. Estimates suggest that the economy grew at a record 9.2% in fiscal year 2007. Latin America's Improved Economies Should Keep Climbing: The economic outlook for Latin America in 2007 and 2008 is extremely favorable. Despite some deceleration in the U.S., sound growth prospects elsewhere and robust growth in emerging Asia should support strong global trade flows and commodity prices. Favorable global liquidity conditions not only bolster growth in the region, but also the appetite for local-currency-denominated paper among emerging-market investors. The Australian Economy: Add Water For Extra Growth: Australia is experiencing an unprecedented 16th year of continuous economic expansion. Agriculture remains an important contributor to growth; indeed, the current severe drought affecting large parts of the country highlights the sovereign's dependence on the sector. Standard & Poor's expects the drought to wipe 0.5% off Australia's GDP growth for fiscal year 2006-2007. | 
