US credit crisis, economy to worsen - Wells Fargo

17 September 2008 21:48  [Source: ICIS news]

Economy to worsen - Wells FargoBy Joseph Chang

BOSTON, Massachusetts (ICIS news)--The US economy will get worse before it gets better, and the renewed credit crisis could disrupt chemical mergers and acquisitions (M&As), a top Wells Fargo economist said on Wednesday.

"I'd like to say the worst is past us, but it's impossible to put lipstick on this pig," said senior economist Scott Anderson at the Chemical Purchasing Summit, organised by ICIS and Purchasing magazine.

"The credit crisis is like an uncontrollable forest fire, with the future direction and potential damage to the US economy at the whims of the markets," added Anderson.

The global credit crisis and volatility in stock markets "could temporarily disrupt M&A activity and add risk to existing deals," he said. "However, conditions are ripe for further consolidation of the chemical industry with manufacturing customers also getting larger."

US housing activity will continue to decline in 2008, said Anderson.

Housing starts fell 6.2% in August to an annual rate of 898,000, the fewest since January 1991. Building permits fell 8.9% to a pace of 854,000.

Anderson said he expected US housing starts to bottom in the fourth quarter of 2008 at around 840,000.

However, troubling signs for the US economy are coming in the form of higher unemployment rates and high household debt levels, he said.

"The labour market is likely to get sicker, even after nine consecutive months of job losses, and household debt is at record levels," he said. "That's bad news and will intensify the credit crunch as banks revise up losses from mortgage defaults and credit cards."

Anderson said he expects unemployment to rise from 6.1% currently to 6.8% by the first quarter of 2009, and said GDP in 2009 could be as low as 1.5%.

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By: Joseph Chang
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