US economist: recession will end this year

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(Xinhua)
Updated: 2009-08-19 10:35

WASHINGTON: The US economy will experience a U-shaped recovery and the recession will come to an end this year, a leading US economist said recently in an exclusive interview with Xinhua.

RECESSION IN US TO END IN 2009

Mark Zandi, chief economist and co-founder of Moody's economist.com, said the current recession, the most serious one since the Great Depression in 1930s, will end in 2009 followed by a weak growth in 2010 and a much stronger growth in 2011-12.

According to Zandi, the recession will end this year largely due to America's massive monetary and fiscal stimulus.

"The economy will come back in 2010, but it won't come roaring back next year as the still weak housing and vehicle markets and the troubled financial system will constrain the availability of credit to households and businesses," he said in a written interview.

"I do expect the US economy to enjoy much stronger growth in 2011-12 as these impediments to growth fade and growth in the rest of the world improves and lifts US exports," he explained.

Zandi believes that the US housing market is going to bottom out, but "the outlook critically depends on the success of the Obama administration's plan to help facilitate more mortgage loan modifications to quell the foreclosure crisis."

"Home sales and housing construction have stabilized and I expect house prices to stop falling by spring 2010. A meaningful improvement in the housing market will not occur until 2011," said the economist.

Speaking of the record-high budget deficits in the US, Zandi said running large deficits has been necessary to quell the financial and economic crisis, but the US policymakers must rein deficits once the crisis ends.

According to the Obama administration, the US federal budget deficit would rise to an all-time high of US$1.84 trillion in the current fiscal year, about four times the record set last year. The deficit will total US$7.1 trillion from 2010 to 2019.

Zandi argues the key to rein the deficit will be healthcare reform as this is necessary to lower the growth in future health care costs. If the growth continues, health care costs will result in ballooning costs for the massive Medicare and Medicaid programs.

As the GAO noted in a report issued in 2007, the growth in health-related costs is a primary driver of the fiscal challenges facing the state and local government sector.

"This is why credible health care reform this year is so important," said Zandi.

CHINA'S STIMULUS PACKAGE VERY SUCCESSFUL

Zandi also praised China's US$586 billion stimulus package, saying it has helped the Chinese economy walk out of the recession.

"The Chinese stimulus has been very successful. It is the principal reason why the Chinese economy has already re-accelerated, helping to lift economies throughout much of Asia," said Zandi.

Zandi said there is no need for more stimulus from China, "but Chinese policymakers should stand ready to provide more if the Chinese economy begins to flag again," said the well-known US economist.

"The rest of the global economy is relying on a strong Chinese economy to get out of this severe global recession," he added.

In contrast, Zandi seemed be more cautious on the possibility of another stimulus package in the United States.

"It is premature to conclude that the US needs another round of fiscal stimulus," he said, pointing out that the current stimulus appears to be working as well as should be expected.

But if the economy is still struggling later this year, "then more stimulus would be helpful," said Zandi.

According to him, this could include more financial aid to hard-pressed state and local government and unemployed workers who are running out of benefits. "Even another temporary tax cut may be of some help," he suggested.