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PrintMar 10, 2009
Economic growth will probably take hold later this year, but “returning growth is not the same as restoring health,” J.P. Morgan Chief Economist Bruce Kasman said in a recent interview.
“We’re in the middle of the deepest global downturn since the 1930s and it’s affecting everyone,” he said, explaining that previous downturns were more geographically contained. He went on to describe the global economy as being in the midst of a “synchronized downturn.”
“Some countries are doing better than others,” he said, “but there’s nowhere to hide right now. Even countries like China and India that have continued to grow are producing outcomes that are very poor based on their past experience.”
He does expect to see a return to growth in the U.S. during the second half of the year, with a boost coming from the fiscal stimulus recently passed by Congress, along with other policies that support financial activities.
However, as growth returns, a series of difficult problems will remain, Kasman said, among them bringing down unemployment quickly and paring back the budgets that expanded as government implemented stimulus plans to spark their economies.
As recently reported, the U.S. gross domestic product (GDP) was down 6.2% for the last quarter of 2008, a sharp revision in the previously announced 3.8% estimate. As bad as that figure is, Kasman said, the rest of the world did worse, shrinking by about 7%, making it “the worst quarter in our entire history of tracking quarterly global GDP, going back to the early 1960s.”
Add to that, new non-farm payroll jobs in the U.S. dropped by 651,000 in February, a development that points to another large drop in GDP in the current quarter.
Although the economy remains in the grip of a severe downturn, there are some hopeful signs that the pace of decline in activity will soon moderate. The sharp weakening in consumer spending present in the second half of 2008 has faded, helped in part by falling energy prices, Kasman said. Coupled with that, he said, business is making progress getting their costs and inventories under control. “If those trends continue – combined with the government’s efforts to help the financial markets along with the support provided by the fiscal stimulus – then I think there is a case for modest growth returning in the second half of the year.”