(Words by Syed Atique Hussain Naqvi, Publisher – Business, Content Leader at Mediaquest)
A recession is unlikely. However, there is a strong indication of an extreme slowdown in the United States, says finance experts at Davos.
The failure to find ways out of the longest US Federal Government shutdown in history, the ongoing trade war with China and the UK’s Brexit impasse all risk dragging the US economy down to zero growth in 2019 – but a recession is unlikely, according to finance experts debating the future of America’s economy at the World Economic Forum Annual Meeting.
“The shutdown, if it continues, will be very problematic,” said Kenneth Rogoff, Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University, USA. “The estimate of zero growth is not crazy at all,” he added.
Brian T. Moynihan, Chairman and CEO of Bank of America Corporation, was more bullish, estimating growth at 1.9% for 2019. His evidence includes strong employment, solid consumer activity and business optimism that is running higher than two to three years ago. For those fearing a recession, he recommends keeping an eye on declines in consumer spending and capital commitments.
Market unease may be due to the fact that, from June 2009 to the present, we’ve seen almost the longest period of US growth since World War II, so people naturally think something’s got to go wrong, said David Rubenstein, Co-Founder and Co-Executive Chairman, Carlyle Group, one of the world’s largest investment firms. Rubenstein said he expects the trade war with China to be resolved in the next two to three months as both sides realize they need to make moves or suffer greater consequences. He also said he expects the shutdown to be resolved soon as Republicans and Democrats will both bear the blame the longer it drags on. However, “if we don’t resolve that in the reasonable future it will really impact the economy,” he added.
People should be wary of the $23 trillion of federal debt, maintained Rubenstein. Rogoff dismissed his concerns as a medium- to long-term problem, arguing that Republicans don’t think it matters as much as tax cuts and Democrats don’t think it matters as much as government spending. However, with the US borrowing $1.2 trillion of its annual $4.2 trillion budget, that cannot be sustained – especially if interest rates rise, argued Rubenstein: “At some point, the markets will wake up and say they can’t tolerate it,” he said.