Chances of US recession less than 50%: Top economist

Bryan Lee
315 words
1 November 2007
Straits Times
English

(c) 2007 Singapore Press Holdings Limited

THE United States economy might have slowed dramatically under the weight of its mortgage crisis, but the chance of a recession there is well under 50 per cent, a top economist says.
Former International Monetary Fund (IMF) chief economist Kenneth Rogoff said yesterday that credit market woes caused by mortgages given to risky US borrowers are being resolved.

But he feels the problem will linger longer in Europe, which ironically has taken the brunt of the US sub-prime mortgage fallout.

'Mr Greenspan's going around saying that the chance for a US recession is almost 50:50 now,' said Dr Rogoff, referring to former US central banker Alan Greenspan.

'I think the odds are considerably less than that,' Dr Rogoff noted.

While there are uncertainties about the extent of the sub-prime problem, 'on the whole, it's getting worked out', he said.

He was answering questions from the floor after giving a public lecture on global financial crises at the Lee Kuan Yew School of Public Policy.

He noted the resignation of US investment bank Merrill Lynch's chief executive, Mr Stan O'Neal, and the possible departure of Citigroup chief Chuck Prince.

'I would not be shocked if Citi or Merrill is forced into a merger to ensure sufficient capital to maintain operations,' said Dr Rogoff.

Both Citigroup and Merrill Lynch have reported billion-dollar losses from investments in sub-prime mortgages.

Recovery will be slower in Europe as banks there appear to have invested in the worst parts of the sub-prime debt, said Dr Rogoff, who is now a professor at Harvard University's economics department.

For the most part, Asian investors have somehow avoided the debacle, he said, adding that the early adoption of new global banking rules by Japanese banks has helped make them more resilient.

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