CEOs see 2pc fall in US growth next year on home loan crisis
How the turmoil in financial markets unfolds will be the most important determinant of the economy's performance next year.
By Agencies |
ATLANTA: US economic growth will slump to 2pc or less next year, hurt by the increase in costs of credit, a majority of chief executive officers predicted in a new survey.
How the turmoil in financial markets unfolds will be the most important determinant of the economy's performance next year, according to one-third of executives surveyed by the Business Council. Forty percent said it was “very important” to the outlook.
The group, which includes the heads of Fortune 500 companies such as American Express, Procter & Gamble and General Motors Corp, said its index of business confidence dropped to the lowest level since it began in February 2005. The results were released before two days of closed-door meetings at Williamsburg, Virginia.
“You can't help but be affected by all the news on credit conditions,” Jay Bryson, an economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. “On the margin, it matters. If you are less confident, it can shape that expansion plan for next year.”
Executives’ concern that the sell-off in credit markets and deepening housing-market slump may spill over to consumer spending parallels remarks by some Federal Reserve officials. Their outlook for growth to slow, while avoiding a recession, also matches predictions by policy makers, who lowered interest rates last month for the first time in four years.
Confidence Weakens: The Washington-based Business Council's gauge of confidence fell to 38.2 from 47.8 in February. The index reflects survey questions about current conditions and the outlook over the next six months. The results add to evidence that businesses have been affected by the reduced access to credit in financial markets. Fed policy makers said earlier this week that while the market turmoil has eased, the outlook remains “fragile” and economic growth may slow.
The market for asset-backed commercial paper shrank to $912 billion at the end of last month from almost $1.2 trillion at the beginning of August, Fed Bank of Boston President Eric Rosengren said yesterday. He also noted that increasing cost of dollar loans between banks in Europe, which are used as a benchmark for corporate borrowing, is affecting the US.
Fifty-two percent of the executives surveyed predicted 2% growth or less in 2008, with 48% expecting 2.1% to 3%. None anticipated the pace of expansion to exceed 3%.
IMF Forecast: The International Monetary Fund predicts the US will slow to a 1.9% pace next year, according to a European government official who distributed the fund's latest forecasts this week. The economy expanded at a 3.8% pace in the second quarter.
Rate Cut: The Federal Open Market Committee lowered the target rate for overnight loans between banks by half a point on September 18, to 4.75%, more than most economists forecast. Policy makers said in their statement that the sell-off in credit markets had the potential to hurt the economy's expansion. The FOMC next meets October 30-31. “Financial markets appear to be stabilising, but they have not returned to normal and are still fragile,” Fed Bank of St. Louis President William Poole said October 9. Poole also said that declining home prices represent “uncharted territory.”
The Business Council survey found “global competitiveness” was the top policy challenge, following by security and terrorism, and education and workforce preparedness.
The number of executives who predicted that employee benefit costs will accelerate dropped to 30 percent, the lowest share in three years, from 49 per cent in February.
How the turmoil in financial markets unfolds will be the most important determinant of the economy's performance next year, according to one-third of executives surveyed by the Business Council. Forty percent said it was “very important” to the outlook.
The group, which includes the heads of Fortune 500 companies such as American Express, Procter & Gamble and General Motors Corp, said its index of business confidence dropped to the lowest level since it began in February 2005. The results were released before two days of closed-door meetings at Williamsburg, Virginia.
“You can't help but be affected by all the news on credit conditions,” Jay Bryson, an economist at Wachovia Corp. in Charlotte, North Carolina, said before the report. “On the margin, it matters. If you are less confident, it can shape that expansion plan for next year.”
Executives’ concern that the sell-off in credit markets and deepening housing-market slump may spill over to consumer spending parallels remarks by some Federal Reserve officials. Their outlook for growth to slow, while avoiding a recession, also matches predictions by policy makers, who lowered interest rates last month for the first time in four years.
Confidence Weakens: The Washington-based Business Council's gauge of confidence fell to 38.2 from 47.8 in February. The index reflects survey questions about current conditions and the outlook over the next six months. The results add to evidence that businesses have been affected by the reduced access to credit in financial markets. Fed policy makers said earlier this week that while the market turmoil has eased, the outlook remains “fragile” and economic growth may slow.
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The market for asset-backed commercial paper shrank to $912 billion at the end of last month from almost $1.2 trillion at the beginning of August, Fed Bank of Boston President Eric Rosengren said yesterday. He also noted that increasing cost of dollar loans between banks in Europe, which are used as a benchmark for corporate borrowing, is affecting the US.
Fifty-two percent of the executives surveyed predicted 2% growth or less in 2008, with 48% expecting 2.1% to 3%. None anticipated the pace of expansion to exceed 3%.
IMF Forecast: The International Monetary Fund predicts the US will slow to a 1.9% pace next year, according to a European government official who distributed the fund's latest forecasts this week. The economy expanded at a 3.8% pace in the second quarter.
Rate Cut: The Federal Open Market Committee lowered the target rate for overnight loans between banks by half a point on September 18, to 4.75%, more than most economists forecast. Policy makers said in their statement that the sell-off in credit markets had the potential to hurt the economy's expansion. The FOMC next meets October 30-31. “Financial markets appear to be stabilising, but they have not returned to normal and are still fragile,” Fed Bank of St. Louis President William Poole said October 9. Poole also said that declining home prices represent “uncharted territory.”
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The Business Council survey found “global competitiveness” was the top policy challenge, following by security and terrorism, and education and workforce preparedness.
The number of executives who predicted that employee benefit costs will accelerate dropped to 30 percent, the lowest share in three years, from 49 per cent in February.
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