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Thursday, June 07, 2007

US Growth Forecast

This is interesting:

US growth will strengthen over the course of the year and exceed 3 per cent in 2008 and 2009, the Bush administration’s top economists said on Wednesday.

The twice-yearly forecast, by the White House Council of Economic Advisors, the Office of Management and Budget and the Treasury, puts growth at 3.1 per cent in both years – a fraction above the level most Federal Reserve policymakers now think is sustainable in the long run.

Now obviously simply making a forecast doesn't mean that it will happen, but as I note in this post, the US does seem to have been weathering the storm of the housing slow down. As I ask myself in the course of that post, could it be that the US actually had the "soft landing" (or notional recession, since GDP was growing less quickly than population, and per capita income temporarily slipped as a consequence) during the first quarter?

Certainly there are reasons for thinking this might be the case. Global growth is remaining incredibly strong, and the Fed have basically been able to sit there without touching interest rates. So what exactly would be the reasons for expecting the US to remain on a low growth path for some time to come? Certainly they are not clear to me, and back in January I was already hedging my bets and justifying why I thought the outlook was not so bleak as it appeared to some.

"In the past week, Goldman Sachs and Merrill Lynch – the leading proponents of the argument the Fed would cut interest rates aggressively later this year – have abandoned their positions."

Well it isn't only Goldman Sachs and Co, I had been arguing that it was likely that Bernanke would start lowering rates, and like the rest of them I think it is now time I abandoned my position. Having said this, what has been wrong footing us all has been the wave of growth in the newly developing countries and the capacity of ageing societies like Germany and Japan to modernise and make competitive their export sectors (and thus take considerable advantage of this surge in demand). As I say in this post, the challenge that faces us all now is to better understand why this is happening, and why it is happening now.

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