US economy may be near tipping point

The US economy may be "one shock" away from a recession, Lehman Brothers Inc said, pointing to the global slump in equity markets as a possible "tipping point".

Lehman sees the odds of a recession in the world's largest economy at 40 percent, rising from a "1-in-3 chance" at the beginning of the year, Paul Sheard, Lehman's global chief economist, said in a press briefing in Singapore yesterday. A global decline in stocks has wiped more than $5 trillion from equity markets this year on concern world economic growth is faltering.

The odds "may be edging higher even as we speak", Sheard said. "We see a prolonged period of slow growth. We're not expecting a recovery in 2009."

Goldman Sachs Group Inc, Morgan Stanley and Merrill Lynch & Co are forecasting that the United States will slip into recession this year for the first time since 2001 amid fallout from the subprime mortgage crisis. The world's largest banks and securities firms have announced more than $100 billion in debt writedowns and loan losses after the collapse of the US subprime mortgage market.

"Are we seeing a financial shock now developing which, as kind of a self-fulfilling prophecy, could tip the US economy into recession?" Sheard said.

"It's a little bit too early to pass a verdict on the equity-market meltdown, but we would be looking at market developments."

"We see the housing recession and the credit market dislocation continue to work their way through the economy," Sheard said.

Agencies

(China Daily 01/23/2008 page17)