- Fears of a hard-landing for the American economy, with
serious consequences for Britain and the rest of the world, have heightened,
despite a recovery on Wall Street on Friday.
-
- One leading American economist says America is probably
already in recession, while others warn that even an aggressive cutting
of interest rates by Alan Greenspan, chairman of the Federal Reserve, will
be insufficient to head off a hard landing.
-
- John Makin of the New York-based Caxton Corporation,
says that "the United States has probably entered a recession".
-
- "Over $2.5 trillion (£1,700 billion) - a year's
worth of average wealth creation during the great expansion of the 1990s
- has already disappeared in the US since March," says Makin. "The
loss of wealth is erasing demand growth, thereby exacerbating the underlying
excess capacity problem, which, in turn, leads to more wealth loss. The
US economy is on a dynamically unstable downward path."
-
- Other economists are also bearish about America's prospects,
after earnings warnings from leading companies and a sharp drop in business
and consumer confidence.
-
- "An ongoing deterioration in technology has an immediate
and discernible knock on overall economic growth," said Neal Soss
of Credit Suisse First Boston in New York. "A slowdown in tech spending
causes multiplier effects that are likely to be substantial, particularly
via the stock market."
-
- CSFB says that as well as lower interest rates - it predicts
that the Fed will cut by 0.75 points during the first half of the year
- the economy will need big tax cuts from the new administration.
-
- Economists at HSBC - which topped the table for this
year's most accurate forecast of Britain's economy - say that even if there
is a policy response, it is unlikely to prevent a hard landing in America.
-
- "There can be no doubt the Fed will act aggressively,"
said Stephen King, global chief economist at HSBC. "But these rate
cuts will provide little immediate respite. We stick by our view that by
the second half of 2001 the US will be in true recession."
-
- The Nasdaq index of mainly technology stocks closed 177
points higher at 2,517 on Friday, still under half its peak level in the
spring, and down on the week. The Dow Jones industrial average rose by
147 points to 10,634.
-
- The fact that America's sharp weakness coincides with
the long presidential changeover period means that any policy response
will be delayed. The Group of Seven finance ministers and central bankers
has scheduled a meeting for February 16 in Italy, by which time the Bush
administration will be in place and, say analysts, the Fed will already
have started to cut interest rates.
-
- Predictions are being made for a cut in American rates
at - or even before - the next scheduled meeting of the Federal Open Market
Committee on January 31.
-
- Advisers to Gordon Brown, the chancellor, last week held
meetings with Larry Lindsey, likely to be head of Bush's council of economic
advisers. The Bush team is worried both at the extent of the slowdown and
the sharp rise in energy prices, particularly for gas.
-
- Although an American hard landing would hit growth in
Britain, there will be some silver linings. A cut in base rates will be
on the agenda for the January 10-11 meeting of the Bank of England's monetary
policy committee, following the vote for a reduction by two of the MPC's
nine members - DeAnne Julius and Sushil Wadhwani - earlier this month.
-
- Although few analysts expect a cut at the January meeting,
the momentum for lower rates is expected to build. A survey of analysts
by Ideaglobal.com, the financial-research company, shows an average expectation
that the Bank will cut base rates to 5.5% from the present 6% during 2001.
-
- The timing of any cuts will depend on a trade-off between
what the Bank sees as worrying strong consumer demand in Britain and the
chill blowing in from overseas. Christmas and new year retail spending
will provide the key, after figures last week showed the saving ratio dropped
to a new low of just 3% in the third quarter.
-
- The other bonus for Britain could come with a fall in
the value of sterling against the euro, which would help exporters. The
euro continued its recovery against a weaker dollar last week, closing
above 92 cents. Forecasters expect the fall to continue. Bank of America
predicts that the euro will hit parity with the dollar within six months.
-
- Sterling, which has traded as high as the equivalent
of DM3.43 this year, has already slipped back to DM3.15, and is set to
drop below DM3 within the coming weeks.
-
- Despite fears over the outlook in America, economists
remain optimistic about prospects for Britain. Growth forecasts have been
downgraded, but only modestly.
-
- The Treasury's latest compilation of the views of independent
forecasters shows an average expectation for growth of 2.6% next year,
after 3% this year. Inflation is expected to remain below the government's
official 2.5% target, while unemployment will end the year close to the
present level of just above 1m.
-
-
-
- MainPage
http://www.rense.com
-
-
-
- This
Site Served by TheHostPros
|