New Slowdown Predicted for America

At the end of last week, investment banks lowered the forecast for growth of the American economy for 2011 and 2012. Simultaneously, the likelihood of U.S. falling into a new recession remains. A very negative scenario of developing events in the U.S. threatens Russia with a new round of crisis. But if the American economy avoids a fall, then for the domestic economy, high oil prices are almost guaranteed.

The growth of the world’s largest economy in the fourth quarter was not 2.5 percent as previously expected, but only 1 percent — analysts at one of the largest U.S. investment banks, J.P. Morgan, reported. On Friday, the U.S. bank J.P. Morgan also revised its forecast for U.S. growth in the fourth quarter from 2.5 percent to 1 percent. The following year, the bank expects growth in U.S. GDP at the level of 0.5-1.5 percent. Even the bank Morgan Stanley lowered the forecast on U.S. GDP growth, observing that the U.S. and the countries of the European Union now find themselves on the verge of a second wave of recession, according to the Information Telegraph Agency of Russia. The new reassessment of the United States’ macroeconomic statistics dramatically changed the analysts’ views about the past and future of the world’s largest economy. Until recently it was believed that the U.S. economy was growing slowly, albeit still growing. However, today these ideas are no longer relevant.

“Over the period from 2007 to 2010, the U.S. GDP was down 0.3 percent per year, although the growth rate was previously described as 0.1 percent. This result is due to a serious overestimation of the negative growth rate of the U.S. economy in 2008 and 2009. According to revised data, the U.S. economy in 2008 declined by 3.3 percent (previous estimate – 2.8 percent), in 2009 – 0.5 percent (according to the previous estimate there was an increase of 0.2 percent) and in 2010 increased by 3.1 percent (2.8 percent). In conjunction with weak economic data for the second quarter of 2011, when GDP grew by 1.2 percent and household consumption by only 0.1 percent, the macro-statistics force us to talk about a much slower crawling out of the crisis than was previously thought,” says a leading expert at the Center of the Higher School of Economics, Andrei Cherniavsky. It is essential that the economy of the United States demonstrate such weak economic performance against the backdrop of the largest program of fiscal stimulus and a zero discount rate of the Federal Reserve System.

Until the end of the year it is possible to distinguish events in world financial markets into the most negative and positive scenarios. The negative scenario: Having shattered the stability of financial markets, the U.S. could push the American government to further budget cuts. “In this case, the weak domestic demand of households and the deepening of the debt crisis in Europe will force the U.S. economy into a real recession,” warns Cherniavsky. For Russia, this scenario signifies the beginning of a new round of economic crisis, which will be accompanied by the devaluation of the ruble.

However, such a negative scenario is not at all predestined. A more positive scenario, which many economists consider more likely yet, suggests that Americans can avoid falling into recession. Some reason exists for these assumptions: the growth of profits in most large companies and the reduction of the number of applications for unemployment benefits. The European debt crisis can also occur according to this relatively positive scenario. The third round of “quantitative easing” also fits the U.S. Federal Reserve into this positive scenario. “For Russia, this means maintaining a positive scenario of high oil prices (at least for another couple of years), the likely appreciation of the ruble, and the ability to attract foreign capital,” clarifies Cherniavsky.