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Print Edition> Business
UPDATED: September 6, 2010 NO. 36 SEPTEMBER 9, 2010
Crisis Focus: U.S. Economy: A Pessimistic View

Worse than expected economic data is igniting fears of a serious U.S. economic retrenchment—economic growth in the United States was down to 1.6 percent in the second quarter, despite the 3.7 percent rate in the first quarter of 2010. Qiao Hong, chief economist at Goldman Sachs China, forecasted a gloomy outlook for the U.S. economy but said a "double-dip" recession is unlikely. She shared her views at the Fifth China Financial Market Analytical Meeting held from August 28-29 in Beijing. Edited excerpts follow:

Our short-term view on the U.S. economy has remained unchanged for the next half of this year based on the following reasons.

First of all, economic recovery has come full circle. The growth propped by the U.S. economic recovery reached its peak last year. The engines to that growth have been weakened and left almost powerless heading into the next half.

Second, the U.S. fiscal stimulus was the major driving force of its economic recovery in the aftermath of the financial crisis. But as the deadline of some stimulus measures is approaching, the economy could lose momentum. In the meantime, the U.S. Government will begin imposing more taxes on businesses and individuals and will start to cut back on government spending. Those signals all indicate a lack of growth stamina.

Third, from the job perspective, the U.S. unemployment rate has remained as high as 9.5 percent with more people applying for unemployment benefits, while available jobs and employment opportunities are declining. The current economic recovery without significant job increases is vulnerable to any fluctuations. Therefore, it is hard to shore up U.S. consumption in the next half of 2010 if workers have no extra money to spend. More noticeably, consumption usually contributes 71 percent to the U.S. GDP growth, and consumers' consumption ability exerts substantial influence on the economic rally.

Fourth, the U.S. property market is still at rock bottom. We forecast that before the fourth quarter of 2013, the number of empty homes in the United States will still be high. Only when empty homes begin to decline can we expect a hike in property prices and a real economic rebound.

Therefore, we forecast a mild slowdown in the U.S. economy, but deflation is unlikely. The United States will have to face negative GDP growth in the third and fourth quarter of this year.

Also, Goldman Sachs is more pessimistic on the U.S. economy and its currency than other investment banks. We expect the U.S. dollar might further depreciate in the next six months, and the Chinese yuan might appreciate 3 percent against the U.S. dollar based on the June data.

Now is not a good time for the United States to hike interest rates, as the core inflation is low and the job market is sluggish. We expect the Fed will keep the rates unchanged or at a low interest rate level even after 2011.

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