By Park Hyong-ki
Staff Reporter
The U.S. economy is expected to slow down further going forward with a high possibility of entering a recession next year, an economist at Standard Chartered (SC) Bank said Wednesday.
However, Alex Barrett, head of client research at the bank, downplayed concerns that the current financial fallout is similar to circumstances experienced during the Great Depression in the 1930s.
``Yes, there is a financial crisis. Yes, there will be an economic slowdown. `Return to the 1930 Great Depression? ― It is not,'' said Barrett at a seminar held ahead of the bank's official launch of its securities unit ― Standard Chartered Securities ― in Korea.
He added that the crisis will not lead to a ``complete meltdown,'' and that the U.S. Federal Reserve is making the right moves to contain the situation.
The research head forecast additional rate cuts by the Fed in the near future, as part of efforts to ease the turbulence.
``Inflation is not the main concern. Deflation is,'' he noted, adding that the inflationary pressure does not stem from rising oil and food prices, as there is a certain level of inflexibility in spending money on oil and other commodities.
But he said the markets need to brace for another series of fallouts in the financial sector, in addition to Lehman Brothers, Merrill Lynch, AIG and Northern Rock.
SC projects some 150 to 300 banks ranging from big to small-size will go bust over the next 18 to 24 months.
The only way for the United States to come out of the turmoil is a recovery in its housing sector.
Barrett said, ``Recovery will come but not without a recovery in the housing sector,'' adding that this could begin in 2010.
``It takes (an average) four years to recover,'' the economist said, citing past economic cycles.
The effect of the latest financial fiasco on Asia's emerging economies is minimal as they are not highly exposed to mortgage defaults in the United States.
However, the research head brushed off the decoupling theory, which refers to Asia becoming immune to Western economies.
``We never subscribe to that,'' Barrett said.
He forecast China's bullish economy will slow down to 8 percent growth in 2010 or so, but said, ``It is still positive growth.''
In all, although the world is facing a severe financial crisis, he said, ``Don't panic!''
phk@koreatimes.co.kr