S&P Says US Sub-Prime Crisis Won't Peak Until 2009

Source : The Business Times, October 9, 2007

MUMBAI - The US sub-prime housing crisis will not peak until 2009 and total defaults could reach US$150 billion, but robust emerging markets would help keep global growth strong, Standard and Poor's (S&P) said on Tuesday.

The ratings agency said it expected world economic growth to grow 3.6 per cent in 2007 and 3.5 per cent in 2008. The US economy would lag at 2 per cent in both years, a growth rate S&P's chief economist described as sluggish.

'World growth remains strong despite the weaknesses seen in the US economy - especially in emerging markets because of healthy domestic demand conditions and export strength to non-US market,' S&P said in a report released in Mumbai.

'The fact that the US slowdown is concentrated in housing, which has relatively low import content, helps,' it said.

Housing was the major weakness in the US economy and the sub-prime crisis - which roiled global markets in late July and August - was far from over, although its shock value was wearing off, the chief economist, David Wyss, said.

'We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won't really hit their peak until 2009,' he said.

That would feed through to unemployment and remain a brake on overall growth.

'Housing starts are going to drop further, the unemployment rate is going to tick up further, we are expecting another year of sluggish US economic growth,' he said.

'We are not halfway through with this crisis yet.' -- REUTERS