Worst May Be Over For US, Say Analysts

Source : TODAY, Tuesday,May 20, 2008

WASHINGTON — A growing number of analysts are expressing confidence that the worst may be over for the United States economy, even if it struggles for some time due to weak housing, tight credit and high energy costs.

Latest data suggests that the world's largest economy may have averted a calamitous downturn and could even escape recession.

"The US economy continues to labour under the averse effects of three powerful shocks: The housing slump, the credit crunch and the spike in energy prices," said Mr Josh Feinman, chief economist of Deutsche Bank's DB Advisers.

"Remarkably, the economy has been able (barely) to keep its head above water despite all the negative shocks — a testament to its underlying resiliency, an aggressive policy response and the relative strength of global growth."

Mr Feinman predicts that the US economy, which saw sluggish growth at a 0.6-per-cent pace in the past two quarters, will see a pickup to a 1-per-cent pace in the second quarter and 2 per cent in the July-September quarter.

He sees a softening to 1.5-per-cent expansion in the fourth quarter and then a return to 2-per-cent growth in the first quarter of next year.

Some of the recent economic reports have defied forecasts of a sharp decline in US growth.

Retail sales fell 0.2 per cent in April, but, excluding vehicle sales, were up 0.5 per cent, suggesting resilience in consumer spending, which is the backbone of US economic activity.

Spending should get a further lift as the government sends out tax rebates of about US$107 billion ($146 billion) in the coming weeks as part of a US$168-billion economic stimulus package.

The labour market has also held up better than expected and increased exports helped by a weak dollar have underpinned growth.

The broad US stock market has rebounded some 10 per cent since the middle of last month, when the Federal Reserve helped support a rescue of investment giant Bear Stearns. It was widely seen as a turning point for the credit crisis and market confidence.

Mr Nigel Gault, economist at Global Insight, said the US economy has shown resilience but it is "still too early to turn our thoughts away from recession and towards recovery".

Global Insight is predicting a contraction of 0.9 per cent in the second quarter. Largely due to the impact of tax rebates, it sees 2.3-per-cent growth in the third quarter and overall yearly growth at a tepid 1.2 per cent.

"The worst of the financial turmoil may be behind us, but the impacts on the economy will linger," Mr Gault said. — AFP