US economy set to shrink in H1, warns Bernanke

02 April 2008 17:21  [Source: ICIS news]

HOUSTON (ICIS news)--The US economy could shrink in the first half of this year before recovering and growing at a barely sustainable pace in 2009, the chairman of the Federal Reserve told a Congressional committee on Wednesday.

At best, US gross domestic product (GDP) would show little - if any - growth during the first half of the year, Ben Bernanke told the joint economic committee of the US Congress.

By the second half of the year, recent stimulus packages should kick in and boost the nation's economy, he added. 

By 2009, the US housing market should stabilise, allowing GDP growth to reach a sustainable rate, Bernanke said.

However, he warned turbulence in financial markets made even this prediction uncertain, adding the economy could weaken further.

Overall, the outlook for the US economy had weakened since the Federal Open Market Committee released its projects in January, Bernanke said.

Financial markets remained under considerable strain, despite recent actions by the Fed, he said.

House construction will continue to contract in the upcoming quarters.

In other news, Bernanke said oil and other commodities should level off, due to slowing growth in the world's economy.

This should cause US inflation to moderate in the upcoming quarters, he added. 

By: Al Greenwood
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