Further indications of a faltering US economy are expected to emerge this week as policymakers stand ready to employ additional stimulus measures. Economists forecast data on hiring and manufacturing output will show a slowing rate of recovery in the world's largest economy. This week's economic reports will follow a weekend of conflicting suggestions from central bankers and economists gathered at a Federal Reserve symposium about how best to reinvigorate the economy's emergence from the financial downturn.
On Friday, the US commerce department revised its estimate of second-quarter GDP growth to 1.6 per cent from 2.4 per cent. But the economy is not expected to fall back into recession, which is defined by two consecutive quarters or more of negative growth. Of 12 economists polled by The National, none forecast a double-dip recession as the most likely scenario. Nevertheless, they remained pessimistic about the severity of the challenges facing policymakers.
"Even if growth remains in positive territory but subdued the repercussions will be quite dire, because with a job market already in a comatose state and the public debt piling up, the financial markets will start questioning the long-term solidity of the US economy," said Fabio Scacciavillani, the director of macroeconomics and statistics at Dubai International Financial Centre. US unemployment, which is running at about 9.5 per cent, remains one of the biggest headaches for Barack Obama, the president, as he looks to create jobs to help stimulate the economy.
Jobs data to be released on Friday are expected to show the rate of unemployment edged higher this month. Industrial figures out the same day from the Institute for Supply Management will show the rate of expansion in the country's factory output. Other reports this week, on volumes of household purchases and the performance of service industries, could further darken the economic outlook. Hopes for sustaining the economic recovery were already set back last week when data showed sales of new homes hit a record low last month and orders for durable goods - big-ticket items such as cars, computers and cookers - rose far less than forecast.
The obstacles posed by withdrawing the US stimulus measures prompted the New York University economist Nouriel Roubini, who foresaw the global financial crisis, to predict a 40 per cent likelihood of the US returning to recession. US growth would be well below 1 per cent in the third quarter as economic "tailwinds" in the first six months of the year became "headwinds" in the second half of the year, Mr Roubini told Bloomberg last week.
Ben Bernanke, the chairman of the Fed, helped to calm investors with an address on Friday to delegates at the Fed's gathering in the mountain retreat of Jackson Hole, Wyoming. Mr Bernanke said the Fed would do "all that it can" to sustain an expansion after the recovery had slowed to "a pace somewhat weaker" than forecast. He laid out four policy options to stimulate the economy, including quantitative easing, in which the government buys up debt.
With the health of the US economy integral to global growth, most economists polled by The Nationalexpect a cooling of the international economy in the remainder of the year. Barclays Capital is forecasting world GDP to grow by an annual rate of 3.5 per cent and 3.6 per cent in the third and fourth quarters, respectively, down from 5.2 per cent and 4.6 per cent in the first quarter and second quarters of this year.
It is forecasting growth of 4.7 per cent for the full year. "Slower growth [is likely] in the leading economies, which will naturally dent progress in emerging markets," said Paul Gamble, the head of research at Jadwa Investment in Saudi Arabia. "Nonetheless, the latter will continue to lead the way."
tarnold@thenational.ae
afitch@thenational.ae
