As recession fears mount in the United States, opinion on this side of the Atlantic appears optimistic on the US economic prospects into 2008.
BlackRock, ABN Amro and State Street all hinted at a possible recession, but the general feeling is the Federal Reserve will act swiftly and decisively early next year to avoid any such occurrence.
Credit Suisse’s asset management vice-chairman Robert Parker believes export growth will be the major stimulus for the US economy.
“While the slowdown in economic growth that most data releases seem to be pointing to is a cause for concern (e.g. lower production and orders surveys), we do not believe that the US economy is heading for recession,” he says.
“In September, exports were 14% higher year-on-year, while the annualised real increase in Q3 2007 was 24.1%.
“The strongest export sectors have been agriculture and consumer goods (ex autos). Other encouraging factors include the undervalued US dollar and reasonably robust growth in demand outside the US, most notably in emerging markets.”
Neptune US Equities manager Felix Wintle is bullish on US equities, despite the recent troubles.
“Our view is based on the fact that there are plenty of other sectors performing very well albeit that certain sectors in the US market should be avoided, notably financials and house builders,” he says.
“The sectors that are continuing to grow at an impressive rate are those with exposure to global growth and those which have a significant proportion of sales in emerging markets.”
JPMorgan is a little more cautious, suggesting the weaker housing sector, an increase in unemployment and a more stringent credit lending environment will slow US real GDP growth to between 1% and 1.5% next year.
“The question is whether the US will go into recession or not though is almost academic when the economy slows sharply,” it says.
“Whilst we still do not think that a recession is highly likely in 2008, the risks of one have certainly increased significantly.”
JPMorgan expects the Federal Reserve to cut rates sharply to “stave off a severe growth slowdown”.
“With the bond market arguably already pricing in a recession, some commentators are accusing the Fed of being behind the curve,” it says.
“Our proprietary policy indicator suggests that an appropriate response may be to cut interest rates to as low as 2-3% by the end of next year.”
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