US recession unlikely in 2008 - DuPont economist

24 October 2007 21:39  [Source: ICIS news]

NEW BRUNSWICK, New Jersey (ICIS news)--The US economy is projected to slow down in 2007 and 2008, but is not likely to fall into a recession, DuPont senior associate economist Robert Fry said on Wednesday.

“We are six quarters into a typical mid-cycle slowdown,” Fry said at the DCAT/ISM/ICIS Strategic Sourcing Summit ’07.

“We expect US GDP to slow from 3.6% in 2006 to 2% in 2007 and 2% in 2008," he said. "We should see a gradual pick up in late 2008 as the rate cuts from the US Federal Reserve take effect.”

Factors slowing US economic growth include weak housing and automotive markets and high oil prices, he said.

While the US is not likely to slip into recession, the vulnerability to shocks has heightened, Fry noted.

“Oil supply shocks, terrorist attacks, bad weather and stupid government policies could cause a recession,” he said.

One positive is the weak US dollar, which is boosting exports. “This is the best export environment for the US in a decade,” Fry said.

“The US chemical trade balance is now in surplus after being in deficit for years," he said. "The declining dollar implies a shrinking trade deficit.”

Fry said the US Federal Reserve would likely cut the Fed Funds rate by a quarter point in October and another quarter point in December or January.

Crude oil rose to $90/bbl recently, but the steady rise instead of a spike has allowed the US economy to cope, he said.

“OPEC has been slow cooking us like the proverbial frog in a pot of water,” Fry said. “The positive is that it has not led to a recession. The negative is that we have not reacted to the price rise as much. Most likely, oil prices will stay high.” 

The two-day DCAT/ISM/ICIS Strategic Sourcing Summit ends on Thursday.

By: Joseph Chang
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