Research Roundup: US Recession Now Approaching?
While the US economy may not officially be in a recession, the “research barometer” is tilting in that direction.
Goldman Sachs on Wednesday joined a growing chorus of Wall Street investment banks that are forecasting the US downturn will turn into a recession, the Financial Times reports.
Morgan Stanley was the first top investment house to forecast a recession, while long-time bear Merrill Lynch said following the latest jobs report that “recession is no longer a forecast but a present-day reality”.
In a note to clients, Goldman said: “We expect economic activity to contract modestly through late 2008, followed by a gradual recovery in the course of 2009.”
The Wall Street Journal’s latest survey of economists puts the odds of recession at 42%, up from 38% last month and 23% just six months ago. The average of the 54 forecasts sees the economy growing at slower than a 2% annual rate for the first and second quarters of this year.
The World Economic Forum expresses fears that the current liquidity crunch will spark a US recession in the next 12 months in a new report Global Risks 2008. The WEF calls for “new thinking on systemic financial risk in response to the revolution in financial markets over the last two decades. “It also recommends a set of principles for country risk management and examines how the financial sector might take on an increasingly important role in risk transfer in the future.
The UN’s Department of Economic and Social Affairs sees a 50-50 chance for a US recession, with global economic growth slipping from 3.7 % last year to a moderate 3.4% in 2008.
The UN also predicts the dollar will depreciate 5% in 2008 and continue its downward slide in 2009. “Unilateral preventive measures, such as lowering interest rates, could be self-defeating and a realignment of currency exchange rates, while helpful, would not in itself be sufficient to avert recession. ” In its World Economic Situation and Prospects 2008 report, the UN urges multilateral policy action:
We don’t believe that the United States economy and Government by itself can take sufficient measures to avoid the risk of the country falling into recession.
Standard & Poors also says the odds of a US recession have risen to even, and in any case, if there is no recession officially, it will still feel like one to most Americans. S&P currently predicts “a bumpy landing but no recession.” Similarly, Moody’s is not quite ready to confirm a recession, in its latest Credit Trends Weekly Commentary:
But, as troubling as December’s employment report was, it fell short of definitively indicating the nearness of recession.
The Economist Intelligence Unit sees a 40% probability that the US will tip into a recession. In its latest World Investment Service report on the US, the EIU forecasts economic growth for 2008 to 1.5%, down only slightly from an estimated rate of 1.9% in 2007, but still the slowest rate of expansion since the 0.8% seen in 2001 following the bursting of the high-tech bubble.
We forecast that growth will pick up to 2.6% in 2009 as the worst of the housing downturn passes and as monetary policy easing makes itself felt.
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January 11th, 2008 at 1:56 pm
[...] It was back to subprime fallout for the fifth most popular post, Standard & Poor’s US Economy May Escape Recession in 2008. The “R” word is on everyone’s lips these days as evidenced by this week’s Research Roundup: US Recession Now Approaching? [...]