Advertisement
Advertisement
Advertisement
BRISBANE, Australia, May 28, 2007 (Starlink Media) – Already in a growth recession, the United States faces the prospect of a genuine recession over the next year, according to ABN AMRO Morgans chief economist Michael Knox.
Evidence of the weak state of the US housing market was revealed in the 17 per cent annualised decline in home building in the March quarter, and another 12 per cent drop is forecast in the following quarter, Mr Knox said.
The worst downturn in the US housing sector in 15 years has hit the economy hard, with economic growth slowing to an annualised rate of just 1.3 per cent growth in the first quarter.
Mr Knox said his company was forecasting US growth to recover slightly in the second quarter with a 2.2 per cent rise, followed by 2.4 per cent in the third quarter and 2.6 per cent in the next.
“But the problem is that this growth rate is lower than the growth rate of the US labour force, so unemployment is going to rise,” he said.
“And that means that the US economy has entered a growth recession.”
In the second half of 2006 the US economy grew by just over 2 per cent compared with 3.2 per cent in 2005. ABN AMRO Morgans is forecasting the jobless rate to reach 4.9 per cent by the second quarter of 2008 as slowing growth fails to match the expanding labour force.
Mr Knox said the slump in housing activity would continue to exert downward pressure on the economy “in every quarter up to and including the first quarter of 2008.”
Grim news for Australian housing companies active in the US market, including James Hardie Industries N.V. and Rinker Group Limited.
On the plus side, Mr Knox said, is modest growth in private fixed capital investment, particularly in investment and equipment and software.
However, “this is actually quite slow, and that’s the reason the recovery in the growth rate is quite soft,” he said.
The economist warned that the outlook for US growth could worsen due to another downturn in the US housing market.
He said housing in the United States is financed by long term interest rates, which are determined by the long term bond market.
“Right now, 47 per cent of all US Treasury bonds are owned by foreigners. If the US dollar continues to fall this year, then it could well happen that foreigners decide to get out of the way of the fall of the US dollar by selling US Treasury bonds,” Mr Knox said.
“And if they do that, they could force up US long term interest rates and that could generate another strong down leg in the US housing cycle.”
He pointed out that former US Federal Reserve chairman Alan Greenspan has forecast a one in three chance of the United States entering a recession in 2007.
“A growth recession in the US economy could turn into something worse,” he said.
“The chance of a genuine recession is absolutely real.”
Copyright Starlink Media TM
Evidence of the weak state of the US housing market was revealed in the 17 per cent annualised decline in home building in the March quarter, and another 12 per cent drop is forecast in the following quarter, Mr Knox said.
The worst downturn in the US housing sector in 15 years has hit the economy hard, with economic growth slowing to an annualised rate of just 1.3 per cent growth in the first quarter.
Mr Knox said his company was forecasting US growth to recover slightly in the second quarter with a 2.2 per cent rise, followed by 2.4 per cent in the third quarter and 2.6 per cent in the next.
“But the problem is that this growth rate is lower than the growth rate of the US labour force, so unemployment is going to rise,” he said.
“And that means that the US economy has entered a growth recession.”
In the second half of 2006 the US economy grew by just over 2 per cent compared with 3.2 per cent in 2005. ABN AMRO Morgans is forecasting the jobless rate to reach 4.9 per cent by the second quarter of 2008 as slowing growth fails to match the expanding labour force.
Mr Knox said the slump in housing activity would continue to exert downward pressure on the economy “in every quarter up to and including the first quarter of 2008.”
Grim news for Australian housing companies active in the US market, including James Hardie Industries N.V. and Rinker Group Limited.
On the plus side, Mr Knox said, is modest growth in private fixed capital investment, particularly in investment and equipment and software.
However, “this is actually quite slow, and that’s the reason the recovery in the growth rate is quite soft,” he said.
The economist warned that the outlook for US growth could worsen due to another downturn in the US housing market.
He said housing in the United States is financed by long term interest rates, which are determined by the long term bond market.
“Right now, 47 per cent of all US Treasury bonds are owned by foreigners. If the US dollar continues to fall this year, then it could well happen that foreigners decide to get out of the way of the fall of the US dollar by selling US Treasury bonds,” Mr Knox said.
“And if they do that, they could force up US long term interest rates and that could generate another strong down leg in the US housing cycle.”
He pointed out that former US Federal Reserve chairman Alan Greenspan has forecast a one in three chance of the United States entering a recession in 2007.
“A growth recession in the US economy could turn into something worse,” he said.
“The chance of a genuine recession is absolutely real.”
Copyright Starlink Media TM
