Recession Risk in US and Japanese Economies

[I]GDP in US and Industrial Production in Japan are Decisive Factors[/I]

The risk of a dual recession is mounting. Our US economics team is already calling for capex-induced negative GDP growth in successive quarters (Jan-Mar, Apr-Jun), for a technical minor recession in the first half of the year by definition. We are forecasting that Japan will cling on to a modicum of growth in the Oct-Dec 2007 quarter, boosted by external demand, but there is a possibility that, like the US, this quarter will mark the peak and the economy will retreat in Jan-Mar. Future data for industrial production will tell us if this is the case.
Written by Stephen Roach, Head Economist, Morgan Stanley

[B]Weekly Bank Research Center 02-04-08[/B]


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[B][B][B][B][B] Be Prepared for a Dual Recession [/B][/B][/B][/B][/B]
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[I] Stephen Roach, Head Economist, Morgan Stanley [/I]
[I]GDP in US and Industrial Production in Japan are Decisive Factors[/I]
The risk of a dual recession is mounting. Our US economics team is already calling for capex-induced negative GDP growth in successive quarters (Jan-Mar, Apr-Jun), for a technical minor recession in the first half of the year by definition. We are forecasting that Japan will cling on to a modicum of growth in the Oct-Dec 2007 quarter, boosted by external demand, but there is a possibility that, like the US, this quarter will mark the peak and the economy will retreat in Jan-Mar. Future data for industrial production will tell us if this is the case.
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[B] Has EUR/USD Peaked? [/B]
[/B] [/B] [/B] <em> Niels-Henrik Bjørn Sørensen, Senior Analyst, Danske Bank
Economic data have been surprisingly bad in the past week, with US employment down and a sharp fall in the activity indicator for the US service sector. Both outcomes increase the risk of a recession. The euro area has also seen sharp falls in the service sector activity indicator, especially in Germany, Spain and Italy, and yet another drop in retail sales. Retail sales have been falling for three months, and turnover is now 2% below the level of a year ago. Service PMI also usually provides a reliable signal about private consumption. In January, the so-called Eco-watchers survey, which focuses on consumption activity, fell steeply to its lowest level since the recession of 2001. The reasons we have mentioned all these data are, first, to point out that the global economy is continuing to deteriorate (and as we wrote last week, we believe it is too early to shift to an investment strategy based on an improving economy) and, second, we are keen to em-phasise that the economic slowdown is spreading fast from the US.

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[B] Economic Stimulus Package: Consumers Don’t Always Do What They Say [/B]
[/B] [/B] [/B] [I] E. Silvia, Ph.D. Chief Economist, Wachovia[/I]

                                                                                                                                                                        With real GDP forecasted to slow to roughly 0.5 percent in the first half of the year and consumers slowing their pace of spending, the possibility of the US economy slipping into a recession helped to incite a fiscal response. The approved economic stimulus package of roughly $150 billion with $100 billion going to individual rebates should give a temporary boost to the economy in the second half of the year. The looming questions are - will consumers save or spend and will the rebate checks come in time?                                                                                                                       

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[B][B][B][B][B] U.S. Economic News Bleak [/B][/B][/B][/B][/B]
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[I] Steve Chan, Economist, TD Bank Financial Group [/I]
In addition to being served up with a number of disappointing fourth quarter earnings reports, investors continued to fret about the rising risks of a U.S. recession. Following poor January employment numbers last week, the ISM non-manufacturing reading for the same month was even worse, plummeting from 53.2 to 44.6. The sizable drop in January was not only the largest monthly decline on record, but also the lowest level since the series was created in 1997. The culprits behind the weak performance were substantial losses in the business activity, new orders and employment sub-indices. While these figures certainly paint a dismal picture for the U.S. economy, they can be quite volatile on a month-to-month basis. Still, even if February records a moderate reversal, these data build the case that no growth was being recorded in the U.S. economy as the year kicked off.

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[B][B][B][B][B] Are Central Banks Taking Risks with Inflation? [/B][/B][/B][/B][/B]
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[I] Trevor Williams, Chief Economist at Lloyds TSB Financial Markets [/I]
Inflationary pressures around the world intensified in 2007. The reason was faster than expected growth in the global economy. This occurred despite the doubling of oil prices and the bursting of the housing market bubble in the US and the subsequent crisis in credit markets. But this faster pace of growth was also accompanied by higher than expected price inflation. Interest rates were raised in response in 2007, but are now being cut in those countries that were most affected by earlier rate rises and the credit crisis.

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[B][B][B][B][B] Other Pre-screened Independent Contributors[/B][/B][/B][/B][/B]
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[I] J-Chart [/I]
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