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By Jason Stipp and Robert Johnson, CFA | 08-21-2013 12:00 PM

U.S. Will Need to Lead the World Out of Soft Patch

The sheer size and consumer orientation of the U.S. economy will be a big swing factor in the export and growth trajectories of other countries, says Morningstar's Bob Johnson.

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Jason Stipp: I'm Jason Stipp for Morningstar.

We've seen ups and downs in the world economies in recent times, but Morningstar's Bob Johnson, our director of economic analysis, says to keep your eye on the U.S. as a big swing factor in the health of the world economy; it might lead us out of the world's soft patch. He is here to explain why.

Thanks for joining us, Bob.

Bob Johnson: Great to be here.

Stipp: Let's talk first about why [you should] keep your eye on the U.S. We've seen decent, consistent, but not really strong growth in the U.S. So why is the U.S. going to be a big swing factor here?

Johnson: It's a big swing factor just because of its sheer size. It's about 25% of the world economy, which would make it the biggest country by far of all the major countries. Even [if] you put Europe in there as a block, it's about the same size as the U.S. So it's certainly a big size component.

And on top of that, it's a big consuming market. A lot of economies out there, like China's, are big, but their internal consumption isn't very high; they don't drive the world economy. The U.S. is the world's largest economy, twice as big as China is, but consumption is probably [once] again as big, because … they spend less on consumption. That's probably the number one factor for why the U.S. is important.

Stipp: If we're feeling a little bit healthier, we're consuming more, and that helps the export economies of other countries.

Johnson: Exactly.

Stipp: Let's talk about one of those biggest countries that exports a lot to us, China. China has been under a lot of scrutiny recently, and you don't see [China] as being a big swing factor on the upside.

Johnson: No. They've actually been a little weak recently; this is the slowest growth rate we've seen out of China since 1990. That's a long stretch, since they've begun on this whole reform movement, that's 23 years, and they'll probably grow about 7.5% instead of the 10%-12% they did in boom times. They've clearly backed off, and a lot of that, frankly, is intentional. They're trying to shift [the economy] from an entirely investment-driven, export-driven economy into a more internal-consumption economy. In the process, it's slowed things down a little bit.

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