Stanchart slashes US forecast

Standard Chartered Bank has slashed its growth numbers for the US economy citing recent hits to business and consumer sentiment, coupled with significantly lower Q1 GDP data.

“We are revising lower our 2011 and 2012 US GDP forecasts following the significant downward revisions to the Q1-2011 GDP data and the recent hits to business and consumer sentiment,” the global bank said in a research note issued this morning.

The bank has slashed its 2011 US GDP growth estimates by 28 per cent, from 2.5 to 1.8 per cent, while reducing the next year’s growth by more than a third, from 3.4 to 2.2 per cent.

“We expect a further expansion of the quantitative easing (QE) programme in Q1-2012, with the Fed now remaining on hold until Q3-2013,” the note said. “After US consumers maxed out their borrowings, the government also hit its spending limits, with the next decade scheduled to be dominated by spending cuts as set out in the Budget Control Act of 2011,” it noted, adding that “[a]ppetite for more fiscal support in Washington, even in the face of a weaker economy, is very low.”

Further, the bank expects the country’s unemployment rate to remain at its historic highs, further burdening future economic growth. “The labour market has been disappointing throughout 2011. The unemployment rate, currently at 9.2 per cent, is likely to remain elevated for even longer than even we had previously thought. We now expect the unemployment rate to reach 8.9 per cent at end-2011 and 8.5 per cent at end-2012. This means weak wage growth and low inflation pressure. We expect core CPI inflation to peak by end-2011. Headline CPI inflation is likely to peak in Q3-2011. The weak pipeline pressures for inflation mean that the Fed can remain focused on growth risks.”

According to the bank, the US consumer has been hit hard by recent events, and sentiment is near its all-time lows. “The first half of 2011 has not been kind to the US consumer. Sentiment is back close to the worst levels of the 2008-09 financial crisis. In June, the Michigan Consumer Confidence series hit the lowest level since March 2009, when payrolls declined by 796,000,” the report noted.

“There are a number of factors that we believe are contributing to this burst of misery: the persistently weak labour market, a still sickly housing market, the reversal of the positive wealth effect and persistently high gasoline prices,” it said citing reasons for the low confidence levels.

Follow Emirates 24|7 on Google News.