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George W. Bush
With U.S. President George W. Bush re-elected to office, the financial world is turning its attention to what his new four-year term means for the global economy. Will the dollar continue to weaken, and will oil prices continue their steep rise?
Prague, 4 November 2004 (RFE/RL) -- Bush has given few concrete details of how he plans to run the world's biggest economy in his second term.
In a campaign that largely focused on issues such as security and leadership qualities, Bush did promise to halve the massive U.S. budget deficit which he built up during his first term.
Worries over sustainability of the deficit -- which presently totals some 545 billion dollars -- has helped send the dollar into a nose dive this past year on international money markets.
Stefan Schneider, senior economist with Deutsche Bank Research in Frankfurt, says Bush's campaign pledge to slash the deficit is not realistic.
"The dollar will remain under pressure because obviously the deficit situation will not ease in the next one or two years, although Bush has promised to cut it by half, but I mean that is not really feasible if you look at the economic fundamentals and the expenditures, especially with the war on terror," Schneider says.
But Schneider does not see a dollar crisis on the horizon. He says the U.S. economy is still growing faster than most other areas of the world, and foreign countries are actually propping up the dollar for their own reasons. If the dollar were to fall further, it would only make U.S. exports to the rest of the world cheaper, and other countries' exports more expensive.
"The Asian interest in exporting their goods to the United States will remain very strong, and therefore there is the present situation, in which the Asian central banks are intervening in favor of the U.S. dollar so that it does not drop against their own currencies. I mean, that will continue, so yes, there is some pressure on the dollar, but on the other hand, I think the current informal currency regime is quite stable," Schneider says.
Another economist, Adrian Ottnad of the Institute for Economics and Society in Bonn, Germany, says, in his view, the deficit is more worrying.
"I think that the Bush administration is in danger of getting into serious trouble if they do not reduce the budget deficit in the short-term horizon, because this would bring some serious reaction on the financial markets; [in short], I don't think the fiscal policy in the U.S.A. is sustainable," Ottnad says.
The United States is by far the world's biggest consumer of oil and has a strong influence over the price of that key commodity. When it became clear yesterday that Bush would probably win the election, oil prices rose, climbing again to over $50 a barrel. This reflects the market's view that the Bush administration is not overly concerned with reducing the United States' consumption of oil.
Economists say, however, that independent of what the United States does, high oil prices may be here to stay.
"To me it's pretty clear in the long term that there is a tendency toward increasing oil prices because of the scarcity of the resources; as we all know, by about 2015 we [are projected to] reach the peak of oil production, and then it [is expected to] decrease; so I think in the long term we will have a strong increase in oil prices, and this trend may be reinforced by China and other countries which are expanding their demand for resources," Ottnad says.
Analysts say that a positive factor in Bush's re-election is that the U.S. traditional stance toward promoting free trade is not likely to change. Bush's opponent, Democratic Senator John Kerry, had promised to change trade policies that he believed were hurting U.S. workers.
Analysts say that the Bush administration's trade representative, Robert Zoellick, has worked closely with the European Union's trade commissioner Pascal Lamy to smooth volatile relations between the world's two biggest trade blocs. The two men also worked cooperatively to try to clear the blockages in the Doha round of world trade talks.
Both Zoellick and Lamy are departing the scene, though the fruit of their efforts is likely to remain in place.
Another significant factor emerging from this week's election is the fact that Bush's Republican Party, which is generally seen as pro-free market, retained and strengthened control of both houses of Congress. Economists say it will now be easier for Bush to secure legislation on free trade with other countries.