So much for the 'decoupling' thesis -- the belief that emerging market economies could maintain adequate global growth in the face of a developed-world recession.

All of the world's major economies -- the United States, the European Union, and Japan -- have most likely slid into a recession -- the Organization for Economic Cooperation and Development (OECD) announced in its most recent projection.

A tri-polar contraction

The OECD sees GDP in the three major zones contracting 1.4% in Q4 and 0.4% for all of 2009 -- a decline in output that will create a global recession for at least the first half of 2009.

Economist Richard Felson told BloggingStocks Friday it's difficult if not impossible to put a positive spin on the OECD's latest projection -- a projection he believes will prove to be accurate.

"Other than the bursting of the commodity price bubble and a pull-back in inflation, it's hard to see any positives," Felson says. "The world needs expansion in at least one and ideally two of the major economies to maintain adequate global growth, so you can see the fix we're in, from a demand standpoint. That's all the more reason for governments in both the developed and developing worlds to increase fiscal stimulus."

The International Energy Agency Thursday increased its 2008 global oil demand forecast slightly, citing China's oil demand, the agency announced.

In its monthly report, the IEA increased global oil demand forecast by 0.1% , or 80,000 barrels per day, to 86.85 million barrels per day. The IEA serves as an energy advisor to 27 industrialized nations, including the United States, United Kingdom, Germany, France, and Japan. Oil rose $1.03 to $137.08 per barrel in Thursday morning trading.

Economist David H. Wang told BloggingStocks Thursday he expects China's oil demand increase in 2008 to be "roughly in-line with the IEA's 5.6% growth forecast."

"China may end up registering oil demand growth less than 5.6%, if the Chinese Government continues to gradually increase the retail price of gasoline and diesel," Wang said. "My research indicates we are not seeing demand destruction yet in China, but this could change. Gasoline now costs about $3.30-$3.50 [per gallon] and if China approves another round of increases, demand could begin to be pinched, as it has in the United States."

Another gas price hike in China?

However, Wang said investors / traders should not assume another gasoline price increase nor lower oil demand in China. "China is trying to take pressure off energy prices and slow its economy, but there's only so much they can increase prices before they have serious consequences on its economy," he said. "The middle class can withstand the price increases but may others with lower incomes can not."

The Organization for Economic Cooperation and Development again cut its forecast for 2008 growth in its 30-nation membership -- this time to 1.8% from "less than 2%" -- saying that while the worst of the credit market stress is over, its impact on the global economy is not. [pdf] The OECD now sees 2009 GDP growth in the 30-nation region totaling 1.7%

Both yearly forecasts were weighed down by a lower GDP growth forecast for the U.S. economy, with the OECD now seeing the world's largest economy growing by a scant 1.2% in 2008 and 1.1% in 2009, down from earlier forecasts of 2.3% and 2.4%, respectively. The United States economy is now confronting strong headwinds -- a housing slump, a credit squeeze and inflation, the latter of which is eroding workers' disposable income, the OECD said.

The OECD expects Europe's euro-zone region to grow 1.7% in 2008 and 1.4% in 2009. Japan's economy is expected to grow 1.7% and 1.5% during the same periods.

Emerging market boom seen continuing

Meanwhile, growth in most emerging market nations is expected to remain strong, led by China, India and what appears to be a new economic rising star, Brazil.

The Organization for Economic Cooperation and Development cut its forecast for 2008 growth in its 30-nation membership to "less than 2%" -- the lowest growth rate since 2003 -- due to fallout from the U.S. economic slowdown, Bloomberg News reported Wednesday.

Sixth months ago, the OCED predicted that 2008 growth in the 30-nation zone would total 2.3%, following 2.7% growth in 2007.

The growth revision marks a substantial shift in OECD expectations. Earlier, the OECD predicted that member economies would be to withstand the U.S. economic slowdown without considerable negative consequence. That outlook, along with economic analysis from other countries, helped form the basis for the so-called 'decoupling thesis' -- where Europe and other developed countries race along unscathed by the doldrums in the world's largest economy.

Oil plummeted $2.38 to $89.52 in early trading Wednesday after the U.S. Energy Information Agency announced that weekly crude oil inventories rose 4.3 million barrels to 287.1 million barrels, well above the 1.25 million barrel increase consensus estimate.

Heating oil fell 4 cents to $2.49, unleaded gasoline fell about 5 cents to $2.26, and natural gas fell about 4 cents to $8.15 per million BTUs.

However, despite the prospect of a U.S. recession that could lower oil demand, the International Energy Agency maintained its 2008 global oil demand forecast at 87.8 million barrels per day, a 2.3% increase from 2007, the organization announced Wednesday in a statement.

Still, the IEA qualified its 2008 oil demand projection by saying the estimate would be adjusted downward if evidence indicated the U.S. economy continues to slow.

The U.K.'s Times Online had a story in Sunday's edition asking experts in London for their top ways to make money in '08. Coming in at number 9 was "Israel on the Move."

"British investors have tended to ignore Israel, but its stock market will be thrust into the limelight this year when it is promoted from emerging to developed market status." This is referring to the fact that Israel is up for OECD membership, and if accepted -- and it looks like it will happen -- Israel will join the prestigious organization and be considered a "developed country."

Some pundits have argued that admission into the OECD will actually hurt Israeli stocks as Israel is about 2% of the MSCI Emerging Markets Index, and its share in the global investment pie would fall to 0.2% if Israel is admitted to the developed markets index. What they neglect to mention is that there is a heck of a lot more money under management in developed markets than in emerging markets. So Israel's weighting may drop, but the amount of money available to invest will be substantially more. In addition, don't forget "overweighting." If fund managers believe Israel is an attractive investment destination, then they can overweight their position to a much higher level than 0.2%.

Look out for Israeli stocks in '08.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position long or short in any stock mentioned as of 1/7/08.

The International Energy Agency Friday increased its forecast for 2008 daily global oil demand. IEA now expects daily global oil demand to increase by 2.1 million barrels to 87.8 million barrels, or an increase of 210,000 barrels per day from the group's previous estimate.

Further, the IEA also said the Organization for Economic Cooperation and Development members oil stockpiles in October 2007 fell to 52.6 days, or just below the 5-year average.

Energy prices

Energy prices cast aside the news Friday morning, at least for the time-being: oil fell 90 cents to $91.36 per barrel, heating oil fell 1 cent to $2.62 per gallon and unleaded gasoline dropped 4 cents to $2.37 per gallon.

"It's a slightly bearish report, but one that shouldn't move the markets too much," independent energy trader Jim Dietz told BloggingStocks Friday. "A 210,000 increase on a monthly revision isn't too bad, and the market expects these rough numbers to move around, so it's pretty much factored into the price." Dietz added that he remains flat and has no positions in oil, heating oil, gasoline or natural gas at this time.