DOHA - There is a growing risk of outright recession in the US economy, a senior HSBC official said in a presentation here yesterday.
David Bloom, Global Head, Market Strategy - HSBC Global Markets said: "Following the 2000-01 stock market crash, the US economy staged a miraculous recovery. That miracle is now ending. The US has become a `push-me, pull-you' economy: companies may be profitable but households, who have been the key drivers of growth, are in trouble," said Bloom.
He stated that a cocktail of higher energy prices, tighter monetary policy, an end of tax cuts and more recently, a housing market that appears to be in freefall threatens to poison the upswing.
"Economic growth in the early years of this decade appears to have been built on the most fragile of foundations. Loose monetary and fiscal policies led to unwarranted gains in the housing market which are now beginning to reverse. The US is now facing an economic adjustment, with feast followed by famine. We are cutting our 2007 US growth forecast to just 1.9 per cent and issuing a `recession risk' warning." he said.
With little room for any further fiscal boost, Federal Reserve funds may drop to four per cent by the end of next year and even lower in 2008 despite inflation remaining "sticky" in the short-term. "Bonds will rally with 10-year yields down to 4.25 per cent. The dollar, meanwhile, is heading lower," Bloom said.
Yesterday's presentation was a part of a series made to HSBC's corporate customers here. The visit to Doha formed part of a regional tour by Bloom, which included Oman, Bahrain and the UAE.
© The Peninsula 2006
