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The forecast for the U.S economy looks bleak

Mon, Oct 20 2008, 13:03 GMT
by Benny Menashe

Finotec Group Inc.

The forecast looks bleak for the U.S economy despite the recent $700 billion bailout for banks. The dollar fell for the first time in four days against the euro and declined versus the pound on speculation a U.S. housing slump and a seizure in credit markets will tip the world's largest economy into recession.
Eyes will be on Federal Reserve Chairman Ben S. Bernanke who will testify at the House Budget Committee on the state of the economy in Washington today. The expectation is that he will confirm that the US is heading towards recession. Last week he stated that a rebound in growth won't happen right away as the government tries to unfreeze credit markets. ``Pessimistic comments on the economy could knock the dollar lower,'' said the general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd. ``There's a good chance the U.S. is in a recession.''
At 2.00pm GMT on Monday the index of U.S. leading economic indicators will be released. The likelihood is that the index fell in September for a third month, led by declines in manufacturing, housing, and stocks that may weaken growth into 2009.
An increase of house foreclosures and rising job losses caused a record fall in consumer sentiment this month and may bring the economic expansion to a halt. Still, inflation is cooling as the economy weakens, giving Federal Reserve policy makers scope to cut interest rates at their meeting next week.
In the UK there is also sentiment that the economy is moving into recession. A government report this week is expected to show that gross domestic product contracted 0.2 percent in the third quarter. The economy stalled in the second quarter, after the longest period of growth in over a hundred years.
In addition, a survey out on Monday by Ernst & Young's ITEM Club, which uses the same forecasting model as the U.K. Treasury, confirmed that recession in Britain is likely. It expects the economy will shrink by 1% next year before growing 1% in 2010. However there are signs that inflation is reducing, enabling the Bank of England to cut rates in the future.
Meanwhile Crude broke below $69 a barrel last week before climbing higher Monday on the back of speculation that OPEC will cut production at a meeting on Friday. The cartel, a supplier of about 40 % of the world's oil, may pare output by 2 million barrels a day in stages to stabilize prices.

Today's Economic Events

Published on  Mon, Oct 20 2008, 13:10 GMT