Five risks facing the global economy in 2006

What does 2006 have in store for the global economy? Stephen Roach of Morgan Stanley doesn't pretend to have all the answers - but he can point to the five key risks that he believes could cause serious problems for us all in the coming year...

The annual year-end forecasting ritual has begun. For us, it is always sparked by the extension of our forecast horizon to another year in this case, our first official glimpse at 2007. We also take an in-depth look at our calls for the year nearly completed (2005) as well as for the 12 months lurking just ahead (2006). It is as close to soul searching as the heartless macro prognosticator ever gets.

Time and experience there is a difference has taught me not to take the point estimates of our global forecast-extension exercise too seriously. We do our best as a tightly knit group of seasoned forecasters to capture the rhythm of the global business cycle. We agonize over policy assumptions monetary and fiscal currencies, oil prices, inflation, yield curves, and, yes, even global imbalances as we put the pieces of the global macro outlook together. But in the end, the outcome of this exercise typically suffers from the classic drawbacks of groupthink. The offsetting inputs from our far-flung network of economists around the world often tend to produce a rather boring outcome something close to a trend-line forecast for the world economy.

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