US slowdown won’t mean the end

The global economy should be able to endure the US slowdown, according to ratings house Standard and Poor’s.

While the outlook for 2008 still largely depends on how well the world’s largest economy fares, “a cooler US economy isn’t likely to freeze other countries in the way it often has in the past”.

According to Standard & Poor’s Ratings Services, the current US slowdown is much less critical than it would have been a decade ago.

“The rise of Asia and an improving picture elsewhere have reduced overall dependence on the US as the leader for global growth. Even if the US slips into a recession, industrialised and emerging countries will likely keep growing in 2008, though most will do so more slowly,” S&P senior economist Beth Ann Bovino said.

Bovino said the most positive news will come from the emerging markets, which are still expanding at a solid pace regardless of the significant weakness in the US and the financial market turmoil.

The US economy is trending downwards, with a 70 per cent chance of a recession and real GDP increasing just 0.6 per cent in the fourth quarter of 2007, after a strong 4.9 per cent in the third quarter.

Standard & Poor’s expects GDP to drop in the first half of 2008 and then to rise through the second half, as monetary and fiscal stimuli kick in. And it expects GDP to rise 1.2 per cent this year, a 1 per cent drop from 2007.

According to Bovino, the US reliance on foreign capital has been touted as a major danger point.

“While improving from the record current account deficit that was reached in 2006, the current gap is a still high 5.4 per cent of GDP. Private money was almost entirely financing it — at very low interest rates,” she said.

“Now foreign investors have lost confidence in US securities, and the US dollar, and money is not so easy to come by.”