Will US avoid recession? Experts split

Abby Joseph Cohen, partner and chief US investment strategist at Goldman Sachs, gave an optimistic outlook, forecasting that the US economy would come back to equilibrium.

By SHARON WROBEL
December 10, 2007 09:19
2 minute read.

 
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Leading experts were cautiously optimistic Sunday that global economic growth catalyzed by rising US exports exports and a strong Asian economy will keep the US economy out of a recession in the wake of the subprime mortgage crisis. "I have no doubt that the US is experiencing a slowdown in growth, and a recession in the housing market, but I don't see this leading to a general recession. We will see a slowdown, but at the same time, strong growth engines from Asia, and even Europe, will continue to provide support," said Jacob Frenkel, vice chairman of American International Group and former governor of the Bank of Israel at the Globes Israel Business Conference. "We are already seeing strong growth in US exports as a result of the weakness of the dollar against Asian currencies and Europe and as such global demand could prevent the US from entering a recession." At the same time, however, Frenkel added that although no one knew for sure how widespread the problem was, it appeared that the extent of uncertainty was receding with each passing month. "There will be further write-downs amounting to billions of dollars, but the banks can absorb this. I don't see any fundamental risk to the banking system," Frenkel said. Also speaking at the conference, Abby Joseph Cohen, partner and chief US investment strategist at Goldman Sachs, gave an optimistic outlook, forecasting that the US economy would come back to equilibrium. "We believe that the US economy will settle and reach a new equilibrium on the assumptions that the financial sector will be recapitalized, the economy will stabilize as exports grow fast and capital spending is strong and central banks are on the job to ease liquidity and attract non-US investors into the domestic market,"said Cohen. She noted, though, that since the US was the largest importer, a slowdown in the economy, would affect other economies including the Israel in the short-term. Rony Hizkiyahu, Supervisor of Banks at the Bank of Israel, did not share that optimism. "Unfortunately, the crisis has not yet peaked. We are still in the midst of the subprime mortgage crisis and by no means have we reached the end," said Hizkiyahu. "The expressed optimism comes too early." And in a much more pessimistic outlook, Clyde Prestowitz, president of the Economic Strategy Institute and a former US trade negotiator, said the US and Israel were in denial, and not facing up to the facts. "I think Israel and the US have to get out of denial and really think about how to compete in the changed world we are entering," said Prestowitz. "The US housing crisis is much bigger than is being forecasted and as a result the US has a good chance of having zero growth next year and possibly falling into a recession. At the same time, the world is literally turning upside down, Asia is back and the dominance of the US power is diminishing which in turn will lead to a rebalancing of the world economy to the East." Israel needs to play a new game, he added. "In comparison to other countries such as Singapore, Finland, Sweden or Ireland, Israel's income per capita was much lower despite strong economic growth, a strong local currency and lower unemployment," he said. "Look at Ireland. How do they do what they are doing? What are they doing in Singapore and Taiwan? I think there's a lot for Israel to learn there."

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