Our US economics team has lowered its 2008 growth forecast all the way to 1.1% and expects a mild recession in the first half of 2008. Meanwhile, our economists covering emerging markets, including China, remain bullish. The decoupling notion – that major economies are likely to still do well even if the US economy slows, thanks to demand from emerging countries – has some support in the markets. In the case of Japan, however, this appears to be off because errant government policies and laws have started to hurt the economy, and the prospects for a convincing strong growth scenario are looking bleak, given not only overseas factors but also weak domestic demand. For our new base scenario, we expect economic growth to slow sharply to 0.9% in 2008 (1.1% in F3/09), and as a risk scenario we point out the possibility of zero growth. - [I]Stephen Roach, Head Economist, Morgan Stanley[/I]
[B]Weekly Bank Research Center 12-17-07[/B]
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[B][B][B][B][B] Buckle Up – Turbulence Ahead [/B][/B][/B][/B][/B]
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[I][I] Stephen Roach, Head Economist, Morgan Stanley [/I] [/I]
Our US economics team has lowered its 2008 growth forecast all the way to 1.1% and expects a mild recession in the first half of 2008. Meanwhile, our economists covering emerging markets, including China, remain bullish. The decoupling notion – that major economies are likely to still do well even if the US economy slows, thanks to demand from emerging countries – has some support in the markets. In the case of Japan, however, this appears to be off because errant government policies and laws have started to hurt the economy, and the prospects for a convincing strong growth scenario are looking bleak, given not only overseas factors but also weak domestic demand. For our new base scenario, we expect economic growth to slow sharply to 0.9% in 2008 (1.1% in F3/09), and as a risk scenario we point out the possibility of zero growth.
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[B] Euroland - Out from under the shadow of the credit crisis? [/B]
[/B] [/B] [/B] <em> Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
During the past week, a group of financially important central banks decided to make a coordinated effort to solve the problems in the money markets. As we wrote in Flash Comment - Central banks: Joint efforts to add liquidity on 13 December, these measures include some of the suggestions previously mentioned as obvious ways of resolving the crisis in the money markets. When it comes to Euroland, it is mainly about USD liquidity being made available to the European money market. Whether these measures will be enough to solve or seriously alleviate the problems in the money markets is difficult to gauge, but the chances of the situation being much improved in January are now higher.
<strong style=""> [B][B][B] [B] Watch UK Business Surveys to Gauge Direction of the Economy [/B]
[/B] [/B] [/B] [I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]
It appears to have been the case that the decision to cut UK interest rates by 0.25% to 5.5% in December, the first cut since August 2005, was influenced by the second consecutive monthly fall in the services PMI. At a time when the central bank has become more worried about the quality of some of the official figures for economic growth, it has been paying more attention to surveys of economic activity as a lead indicator when setting policy. So what does our own Business Barometer survey, released each month, tell us about the state of the UK economy and the likely direction it will take in the months ahead?
<strong style=""> [B][B][B] [B] US Forecasts Revised Lower, Fed Writes “Dear Santa” Letter [/B]
[/B] [/B] [/B] [I] Steve Chan, Economist, TD Bank Financial Group [/I]
On Thursday, we released our new Quarterly Economic Forecast for the U.S., Canadian, and global economies, as well as an outlook for the U.S. consumer (both can be found on our website). We now expect a much weaker profile for the U.S. economy through the first half of next year. The housing contraction has intensified. High gas prices, resetting mortgages, and ongoing home price declines that limit homeowner’s ability to tap housing wealth will restrain consumer spending to some degree. And, renewed financial distress is likely to weaken corporate spending. American exports are still providing a near total offset to the housing drag, but there are signs imports are weakening further – a mathematically positive thing for U.S. GDP growth but a net negative insofar as this is a sign of consumers and businesses preparing to take a breather. We still believe we will see the Fed cut an additional 50bps – and the Bank of Canada 25bps – to stimulate demand, but U.S. core inflation of 2.3% shows that price pressures make the market’s expectations for even further cuts unlikely.
<strong style=""> [B][B][B] [B] US Economy To See Another Sigh of Relief [/B]
[/B] [/B] [/B] [I][I]John E. Silvia, Ph.D. Chief Economist, Wachovia[/I] [/I]
Another interesting week for the economy and financial markets is now behind us. The week began with optimism that the Fed would do more than the widely expected quarter point cut in the federal funds rate and the discount rate at their Tuesday FOMC meeting. When they did precisely what the market expected but not what investors had hoped, the stock market sold off sharply and spreads widened on asset-backed commercial paper and many types of structured products. Howls were heard across the country that the Fed just didn’t get it. This was particularly disappointing in light of recent speeches by Vice Chairman Donald Kohn and Fed Chairman Ben Bernanke that they did understand what a threat the lack of liquidity in parts of the financial markets was to the broader economy. Wednesday morning investors awoke to the news that the Federal Reserve and other central banks in Europe had reached an agreement to provide liquidity to financial institutions that were holding large pools of assets that are nearly impossible to sell or value right now.
<strong style=""> [B][B][B] [B] Other Pre-screened Independent Contributors[/B]
[/B] [/B] [/B] [I] J-Chart [/I]
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