US recession will be limited
The US economy will bounce back early next year and is showing some signs of strengthening already according to Putnam Investments senior vice president Gerald Colleary.
Speaking at a Rothschild adviser briefing in Sydney this morning Colleary says the US economy was already depressed before the events of September 11 and a number of risks had become a reality.
Among these was the likelihood of a recession which he says is now a certainty in the last quarter of this year as economic cycles would become stronger and have a greater impact.
However Colleary says the US Government and Federal Reserve Bank had put in place a number of measures to prevent this slide and these would now be important in bringing the US economy out of any slump.
“The US economy was vulnerable but it was poised for recovery. The recession will also be inevitable as in the third quarter the economy only grew by 0.3 per cent, narrowly avoiding the first negative return since 1994,” Colleary says.
“The global implications are that no economy will escape the effects of September 11.”
However Colleary says the recession will be short and that while Putnam has revised its own figures to show growth at negative 1.8 per cent it feels the US economy will return to positive territory by May 2002.
“The reason we feel it will be mild and brief is that the Federal Reserve has dropped interest rates, and the US administration has launched packages worth $100 billion including funding to the airlines and major infrastructure projects,” Colleary says.
This may however cause a return to budget deficits and a weakening of the US dollar according to Colleary, but when the US recovers the benefits would also flow onto other markets.
“Markets anticipate turn arounds when they are visible and at present there has been strength in equity markets in the last few weeks so these may be the first signs of the turnaround,” Colleary says.
AUTHOR
Jason Spits
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