Chris Caton
The United States economy could experience a hard landing, contrary to the predictions of many leading commentators, according to BT Financial Group chief economist Chris Caton.
Caton pointed out that only on 30 per cent of occasions had the market accurately predicted a crash in the US economy, which has experienced seven recessions of varying scales in the last five years.
This was important because of the strong link between the US and Australian economies.
Speaking at a quarterly global economic briefing today, he referred to the continued slowing in housing construction in the US, along with falling employment figures in construction and manufacturing, as having the biggest downward impact.
He displayed a table showing that over the past three months, the US construction and manufacturing sectors have lost 100,000 jobs.
Overall though, he said “employment growth is still holding up quite well … it could weaken significantly in coming months, but has held up so far”.
Looking at figures showing gross domestic product (GDP) growth of leading national economies, Caton said the November GDP growth rate of 2.7 per cent in November was lower than expected.
Looking at consensus views on global medium-term economic growth, Australia still led most other nations with average growth of 3.2 per cent predicted over the period 2006 — 2016.
In historical tracking of the Australian currency, he said that over the last five years the link to US GDP growth “seems to be less obvious”.
Despite the expected negative impact of the anticipated fall in the US economy, Caton said there has been a gradual shift in the Australian dollar relative to the US dollar.
“We seem to be able to generate our own cycles now to a greater extent than we could in the past,” he said.
Caton believes that it is unlikely the Reserve Bank of Australia will raise official interest rates in February, 2007, despite numerous predictions, “given that underlying inflation has been creeping up” and that a longer period is required to gauge the effect of earlier rate increases.
