US doesn't rule the economic roost any more -

We're in the London Kensington Hilton, listening to Malcolm Penn, CEO of British analyst firm Future Horizons delivering his company's annual semiconductor industry forecast.

What makes Penn interesting is that he puts his forecasts of semiconductors in the context of the world economy and he believes that the International Monetary Fund (IMF) has good data which helps his clients understand potential in the semi sector. There are correlations between the semi industry and world growth, but they vary according to conditions.

Penn said that in the first quarter of this year the world economy expanded at a five percent  annualised rate. IMF predicts 2010 GDP growth at 4.5 percent this year, with 2011 projected at 4.25 percent. All economies are recovering but at variable degrees.

"There's always things that could derail the economy, and to focus  just on the bad news is just as bad as just focusing on the good news."

Advanced economies are recovering but modestly and unsteadily, while developing economies are showing much stronger and steadier growth.

"All of the advanced economies are loaded with debt, and the reckoning has now arrived. Confidence is still pretty shaky and some of the recent financial turbulences are unnerving people."

Penn said that deflation is a much bigger risk than inflation, according to the IMF.  "The key message is that cheap money is over, and borrowing money  won't be a solution to anyone's problem."

If you look at the quarterly growth, said Penn, the credit crunch was a disruption to normality and not a recession in its classical sense.

Up until the 1990s, the  advanced and emerging economies grew at the same rate, but the growth rate of emerging economies is roughly twice as great as the advanced economies. There's strong local demand and they represent 85 percent of the world economy. It's sustainable on a
person basis as well as on a country basis.

"It's terribly wrong to think what's happening in America is what's happening in the rest of the world. The emerging economies are driving the world. Whether it's in India, China, or South America, they're now in the driving seat as far as the world economy is concerned."

The IMF said that inflation is unlikely until at least the next 12 months. Growth in the US will be between three and three and a half percent in 2010. "Unemployment is the big issue, there's 14.6 million people unemployed. The economy may be recovering but the US is not creating
jobs. It's predicted to come down but not until next year."

Japan is looking at 2.4 percent growth in 2010 but there's a risk of collapse from rising public debt. The yen remains at a 14 year high versus US dollars. Unemployment has risen to 3.47 million.

China and India are the great growth areas between eight and 10 percent and India is going to overtake China in population.  China is now the world's second largest economy, but troubled by very high inflation. India is the fastest growing nation and the IMF is predicting 9.4 percent. Inflation is India's biggest problem.

In the Eurozone growth the outlook has gone to one percent. The Eurozone has the lowest growth of all the advanced economies. Business confidence has improved but financial performance is still spotty. EU unemployment amounts to 23.3 percent million.

The steep decrease prompted by the Lehman Brothers collapse triggered an immense overreaction all the way down the chain. Everything stopped dead for three quarters. The stimuli for growth in the semiconductor market is coming to an end. Chip correlation to GDP growth is quite weak. They are related but the relationship between them is not that good.  "The chip market can behave in its own way."