The United States economy has bottomed out but it is possible to fade again in 2010, and the easy monetary environment will remain for quite a period of time to come, two economists of Standard Chartered Bank said Thursday.
Indicators such as payroll, weekly hours, the Institute for Supply Management and the leading indicators suggest that the U.S. economy bottomed out in July, said Kelvin Lau, regional economist of Standard Chartered Bank (Hong Kong) Limited.
The U.S. gross domestic product was "set to rebound strongly in Q3 and Q4 on restocking and fiscal spending," Lau said at a press briefing in Hong Kong.
But the fundamentals, like fiscal health, will again be in the focus next year, and the challenges and uncertainties mean that the recovery process will be long. It is not likely for the Federal Reserve to announce rate hikes until at least 2011, he said.
China and India may be among the early movers to tighten monetary policy but even they will most likely not pursue tighter monetary policy until 2010, said Simon Wong, regional economist of Standard Chartered Bank (Hong Kong) Limited.
Lau said there are three preconditions for rate hikes, including convincing signs of an economic recovery, re-emergence of inflation as serious threat to sustained economic growth, and the ineffectiveness of other targeted measures to restore price stability.
In emerging Asia, the economic recovery "remains very uneven and shallow ... despite some signs of a V-shaped rebound." A general tightening of liquidity conditions, or even the signaling of such a policy, could easily stall the nascent recovery.
"A sharp rise in consumer price inflation is a distant threat" given high unemployment, large spare capacity and weak demand, Lau said.
Nevertheless, Lau warned against rebound in asset prices left unchecked, although Asian stock prices have yet to reach their previous peaks.
This needs to be addressed by improving the allocation of liquidity by adjusting fiscal and lending priorities, improving market efficiency, as well as targeted tools like margin financing limits and loan-value ratios, Lau said.
(Xinhua News Agency August 14, 2009)
