Thursday, October 2, 2008

US crisis to have severe impact on global economy in 2009

Standard Chartered expects full crisis impact next year

US problems likely to last despite bailout

PARISTA YUTHAMANOP

The US crisis will have a severe impact on the global economy next year as the housing market continues to fall, said economists at Standard Chartered Bank.

Tai Hui, head of economic research for Southeast Asia at Standard Chartered, said the $700-billion bailout being considered by Congress was unlikely to clear market uncertainties about US financial institutions immediately.

The US Senate yesterday approved a new bill for the rescue package, which includes $150 billion in tax breaks for consumers and businesses and an extended government guarantee for bank deposits to $250,000 from $100,000.

Mr Hui said the bill was expected to be backed by the US House of Representatives this week, but that significant risks remain for the US economy.

"There is a high degree of uncertainty in the US economy. The bad assets in the banking system have not fully come to a completion," he said.

Mr Hui noted that unlike the Resolution Trust Corp set up in the late 1980s to address the US savings-and-loan crisis, the US government now aimed to buy up distressed assets not from failed banks but from performing ones.

US economic growth is expected to decline in the near future, with some zero-growth quarters until mid-2009.

The economic slowdown will spread globally, Standard Chartered said, as growth in the eurozone and Japan are likely to decline.

Mr Hui noted that interest-rate cuts by the People's Bank of China over the past two weeks showed that the Chinese economy was also slowing down dramatically.

"The growth environment in 2009 will be more challenging and inflation will be less of an issue. Central banks and governments are likely to shift their bias towards growth," he said.

Standard Chartered Bank expects the Thai economy to grow 3.9% in 2009. It forecast economic growth to stand at 4.7% in 2008, as the economy is expected to slow to 3.8% in the second half from 5.7% in first half of the year. Inflation is expected to decrease to 2.5% next year from an average of 6.4% last year.

Thomas Harr, a senior foreign-exchange strategist for Standard Chartered, said the global slowdown and deleveraging by US financial institutions elsewhere would cause the dollar to appreciate from now on until mid-2009.

"The global backdrop will be dollar-positive. We expect the euro to weaken to 1.30, from 1.40 to a dollar over the next nine to 12 months. And other currencies to move in line with the euro," he said.

"We expect the baht to peak at 36 to a dollar at the end of the second quarter in 2009. The baht should stand at 35.5 to a dollar at the end of the year."

Usara Wilaipich, a Standard Chartered senior economist, said Thai exports were unlikely to hold up in 2009 because 10 Asian countries whose exports relied heavily on the US accounted for two thirds of total exports. G-3 economies accounted for one third of exports.

She said the Bank of Thailand was likely to cut its one-day repurchase rate from 3.75% now to 3% in 2009.

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