12 September 2013 15:44 [Source: ICIS news]
BOSTON (ICIS)--Chris Lafakis, senior economist with Moody’s Analytics, presented on Thursday a comforting outlook for the US economy in the coming years, projecting that GDP will grow at 3% in 2013 and up to 4% in 2015.
Mr. Lafakis was speaking at the 6th ICIS World Chemical Purchasing Summit held in Boston, Massachusetts.
Among the reasons cited for the outlook, Lafakis said that fiscal headwinds are peaking and businesses are thriving. Profitability is currently at record levels.
Another major reason is that households are rapidly deleveraging. Money lending has been tight, so people are just paying off debt.
The US banking system is better capitalised than its competitors. The infusion of money derived from the bust of 2008 and lending decline has left banks in good shape.
Banks are more likely to start lending now after the austerity imposed by the 2008 recession.
Additionally, housing is fairly valued in the US today after losses of more than 30% in the recession years. This puts the recovery in a better footing. Housing is one of the largest multipliers for the economy.
Housing affordability is currently at the highest levels since 1980, Lafakis said. This will contribute to the recovery of the construction business, although housing starts may not reach 2007 levels yet.
However, there are also some risks looming. Interest rates are rising fast since the Fed is hinting to end stimulus to the economy and restore rates to “normal” levels.
Household income has declined in the last five years when adjusted for inflation but this may ease, Lafakis said.
Companies have done a lot of cost cutting, but in the end, growth will have to come from expansion and that means hiring more workers.
Companies are posting more openings, but they are not hiring very rapidly. The unemployment rate is coming down, but not as fast as expected, and this may have an impact on the forecast.
About the state of the world economy, Lafakis said that Europe’s credit spigot must open. Corporate and household loans are falling. The European banking sector is not as well capitalized as the US. European banks are not as profitable as US counterparts.
Countries faring well, such as Germany, still have low investment rates despite high savings. It is expected that the eurozone will lag the US and Japan economies going into 2015 and beyond.
Emerging economies will be settling into lower rates of growth, Lafakis said.
China is expected to have 7.5% growth in coming years - what is now considered sustainable. BRIC countries (Brazil, Russia, India and China) will have a hard time growing at 2006-2007 rates. They will still grow, but not as fast.
A second wave of emerging markets may come from Eastern Europe or South Africa, Lafakis said, but this may likely be in 2020 or beyond.
The 6th ICIS World Chemical Purchasing Summit continues until Friday.
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