Australia | Oct 31 2006
By Greg Peel
The third quarter US GDP growth figure came in at a weak 1.6% – significantly below consensus estimates, and the slowest since the first quarter, 2003. This dragged year-ended growth down to 2.9% from 3.5%.
Macquarie economists suggest that if this is just the start of a downturn, then a recession may be around the corner. However, it is more likely that the downturn is well on the way, they note, suggesting it won’t get any worse than this.
Thus the outlook for the global economy remains positive.
Macquarie also notes the gap between US real indicators and monetary indicators. While the economy is slowing, financial markets are surging on the back of the ever-growing credit bubble, manifest in, among other things, the burst of M&A activity.
In Australia, the booming terms of trade provided a cushion for the housing slump. Macquarie thus suggests the global credit boom may well have a similar effect for the US housing slump.
It’s early days, so Macquarie is not advocating overexcitement. But it does suggest the equity market rally might be “more than just speculative froth” after all.
Credit Suisse economists are also upbeat, suggesting the GDP number looked poor in the headline but was much stronger in the detail. Consumption and capex growth have “held up nicely”, says CS, and labour income growth appears to be picking up.
(Labour income growth has been a point of concern for economists. See “Is The First World Worker Under Threat Of Extinction?” 25/10/06).
CS thus believes the data support a soft landing scenario for the US, and thus the global economy.