Published April 18, 2008

US recession will be mild: G-8 business chiefs

Europe, Japan also likely to escape severe damage to their economies


BUSINESS leaders from the G-8 countries meeting in Tokyo yesterday offered a reassuring assessment of the likely impact of the sub-prime crisis on the world's major economies.

They argued that the US would suffer only a 'mild recession' in the first half of 2008 before returning to growth later in the year and that Europe and Japan were also likely to escape without severe damage to their economies.

The business leaders from the US, Canada, Japan, Italy, France, Britain, Germany, Russia and the European Union nevertheless acknowledged in a communique after their meeting that 'the turmoil in international financial markets coupled with skyrocketing prices of crude oil and other commodities, as well as sudden and rapid movements in exchange rates entail downside risks'.

There will be a 'mild and short recession' in the US, predicted chairman of the US Business Roundtable Harold McGraw, who is also president and CEO of the McGraw-Hill companies.

The US housing recession is 'finally coming to an end', he said at a press briefing following the Tokyo meeting, which was designed to formulate strategy among G-8 business leaders in advance of this year's G-8 summit.

Considerable fiscal stimulus is already being applied to the US economy, Mr McGraw noted, and the monetary stimulus provided by aggressive interest rate cuts by the Federal Reserve should 'kick in' around the end of this year.

While US economic growth is likely to turn negative in the first two quarters of 2008, annualised growth rates in the second half should be strong enough to produce 1.1 per cent overall US growth for the year, he said.

Mr McGraw added that the G-8 group also expected growth of 1.7 per cent in Europe and 1.5 per cent in Japan for 2008, while robust growth in emerging economies should push global economic expansion this year up to 3.7 per cent overall.

But he also acknowledged the danger of a 'double dip' recession in the US if monetary stimulus fails to have the expected positive impact on consumption and investment.

A similarly optimistic message came from Jurgen Thumann, president of the German Federation of Industries, who argued that German and European business 'should be able to overcome' the impact of financial market turmoil without great damage to profitability and employment.

'We have not so far experienced any shortage of credits' despite huge losses among European as well as US banks as a result of the US sub-prime mortgage crisis, he said.

The US economy is 'diversified and resilient' and many areas have not been negatively impacted, argued Paul Speranza, chairman of the US Chamber of Commerce.

Any US recession resulting from the sub-prime crisis 'will not be long and it will not be deep', insisted Mr Speranza who noted that he was speaking on behalf some 'three million US businesses'.

The business leaders expressed optimism that industrial emission targets related to global warming, which will be a major subject at the G-8 summit which Japan is hosting in Hokkaido in July this year, will be achievable.

They also called on G-8 leaders to conclude an 'ambitious Doha Round' of international trade negotiations under the WTO in order to keep global growth on track.