The terrorist attacks in the US struck a heavy blow to an already slow US economy yet the outlook i...
The terrorist attacks in the US struck a heavy blow to an already slow US economy yet the outlook is still upbeat and relatively optimistic.
Fund managers are divided in their views and debating whether the US is in a recession, but there is consistency in the belief the economy will pick up early next year as long as terrorism remains at bay and consumer confidence is restored.
Steve Arnold, a fund manager on Threadneedle's US desk, says they have had to dramatically lower their forecasts since the terrorist attacks and admits they were not expecting a recession.
'But in the technical sense we are now in a recession, that is GDP is down for the third and fourth quarter,' he says.
John Hawksworth, head of the macroeconomics unit at PricewaterhouseCoopers, disagrees and will not be drawn into a forecast until the Q4 GDP figures are released at the end of January, although he says: 'It would not take much to push the US into a recession.'
Before 11 September, there was an expected growth of 1.6% for Q3 and 2.4% for Q4.
Arnold predicts: 'We expect to be back on track in the first quarter of 2002 with a growth of 1.4%, quarter on quarter.'
Simon Moss, senior investment manager at Gartmore, is expecting negative GDP growth in Q4 if not Q3, but sees this changing in the new year. 'The Fed has taken interest rates to 2.5% and the government fiscal package is worth $60-$70bn so we are hopeful of a recovery by the beginning of next year.'
The fact the Fed has cut interest rates by 1% since the terrorist attacks and is pumping high levels of liquidity into the economy could cause it to go into overdrive, but Arnold says a weak GDP will keep inflation under control and a level of 2% is expected for 2002.
One of the biggest uncertainties for the economy, other than more terrorist attacks, is consumer spending. Consumer confidence has been adversely affected by what happened on 11 September and Hawksworth thinks it is critical to keeping the US out of a recession. 'We will have to wait and see if it bounces back in the run up to Christmas,' he says.
Arnold is in agreement and says this is the key to how and when the economy will recover. 'We still have not had clear indications from the public about spending habits since the disaster, but the initial signs showed they were shocked and stopped spending a bit,' he says. 'But the prospect of growth depends on how they react and that is the big unknown.'
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