Azerbaijan, Baku, 4 April / corr Trend A.Badalova / The US falling into a recession will have consequences for the rest of the world in many ways, says Stephen Jen, Executive Director and Senior Currency Economist of the British bank Morgan Stanley.
"As the financial storm passes, and I suspect we may have seen the worst, in terms of the financial market shocks, the focus is likely to shift to the economic fallout of this financial storm," he said. He believes that the US falling into a recession will have consequences for the rest of the world in many ways.
According to Jen, the US recession will likely be shallow and short. Financial leverage in the recent years has primarily financed the financial engineering, but not quite the capital expenditures. In our view, the consumption in US will be hurt, but not enough, , to keep the US in a protracted recession. The economic recovery after the recession, however, could be a bit moderate, due to the nature of the shock, i.e., due to consumption.
With respect to coupling in the developed world but decoupling in the emerging markets, Jen said that this is not a binary concept, but Euroland and Japan will likely show more deceleration in growth, as a result, than the likes of Asia and Latin America.
"Emerging markets, in general, have enough positive forces to offset the negative shock from the US, though not fully," he said.
This week addressing the Congress Committee on Economy Ben Bernanki, the head of the US Federal
Reserve System, for the first time confessed the possibility of emergence of recession. The GDP in the United States for the time will increase slowly and even decrease. However, even if the US economy experiences recession, by the end of the year it will succeed to get out of it. Since September 2007, the US Federal Reserve Service decreased key interest rate by 3% to 2.25% so as to assist the economy to overcome the impact of crisis in mortgage market.
According to the British expert, the central banks outside the US will probably need to ease. As the world slows, central banks other than the Fed will also cut rates.
The International Monetary Fund (IMF) decreased the forecast for the world GDP rate for 2008 from 4.1% to 3.7%. The possibility of recession is 25%, IMF thinks. The IMF plans to present the full version of the report on 9 April.
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