Houston—Over the last month, the debate on whether or not the U.S. is in recession has switched from a question of “if” to “how long” and “how deep.” In a presentation on the global economy during Chemical Market Associates Inc.’s (CMAI; Houston) World Petrochemical Conference, Arved Teleki, CMAI’s chief economist, said he believes the U.S. is in and will be in recession in the first half of 2008. “I am convinced that after Labor Day, we will see significant improvements.” The U.S. Labor Day holiday always falls on the first Monday in September.
Teleki’s comments came two weeks before U.S. Federal Reserve Chairman Ben Bernanke, in measured testimony before the joint economic committee, admitted there is a possibility of a recession, traditionally defined as two consecutive quarters of contraction in gross domestic product (GDP). “We’re currently in a period of slow growth that began in the fourth quarter of last year. We expect it to continue through the first half of this year. It’s possible, not certain, but possible, that the first half of this year will be slightly contractionary.”
In 2007, Teleki said global GDP was about 4.7% on a PPP (purchasing power parity) basis. Asia and the east offset a slowdown in the U.S. for 2007, with China registering 11.5% growth, India 8.9%, and the CIS (Commonwealth of Independent States) at 7.7%. The traditional powers of Western Europe (2.6%), North America (2.3%), and Japan (2.0%), all lagged, with North America down a full percentage point from 2006. Housing is the story there, with housing starts off 1 million from their peak. During the housing boom, Teleki said the housing market accounted for 6.5% of GDP; it’s now around 3.5%.
In a “fortuitous coincidence”, however, Teleki pointed out that so-called sovereign wealth funds from nations like the United Arab Emirates and Singapore, which have $2.5 to $3.0 trillion to invest, could inject capital into the global economy at a time when banks and other traditional credit avenues have constricted lending. “There is a lot of liquidity which is needed and is coming,” Teleki said.
Going forward, Teleki forecast global GDP growth in 2008 on a PPP basis of 3.7%, with 2009 in a range of 3.8-4.0%, and 2010-2012 slightly higher to 3.75-4.25%. “This is not a collapse. This is not stagflation. This is just slower growth,” Teleki said, adding recent tumult is more likely to be over in 6 months than 6 years.—[email protected]
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