U.S. Economy Won’t Grow More Than 2.5% Even by Q4 2014

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If US remains as weak as it is then tapering may be further delayed to next year, says Bart Van Ark.

 

Bart Van Ark, executive VP and chief economist at The Conference Board said that unemployment in the US remains very high and investment does not look promising going ahead. If the current situation doesn’t improve, then US economy may not grow faster than 2.5 percent even by Q4FY14. Also Read: Fed’s George: Delay in tapering could hurt Fed credibility Speaking to CNBC-TV18 Ark said that he was not so surprised by Fed pulling back from tapering because the US economy is really that strong. “Now, the Fed said that if economy shows strength then they may taper so, don’t be surprised that if the economy is going to accelerate to 2.5 percent or more in Q4, it will happen. But if it remains as weak as it is then we are likely to see the tapering further delayed to next year,” he added.
Below is the verbatim transcript of Bart Ark’s interview on CNBC-TV18
Q: What is going on in the US? We have seen political turmoil, it reminds us of 2011, when world markets did see a credit rating cut, what do you think this time is going to bring us?
A: Today’s news was altogether to get a reasonably positive, the second quarter holding up reasonably well so we had a bit of an uptick in Q1 which was a weak quarter, that was upgraded to 1.1 percent. The unemployment claims is not so good news for the labour market but we need to look forward and there are still some newer facts in the economy itself.

First of all, unemployment remains very high, it came down last month but it comes down for wrong reasons, labour participation is the planning in United States so you need to add more jobs rather than people leaving the labour force which is a major concern going forward.

Investment doesn’t look very promising going forward. It picked up a bit in the number of Q2 that we got today. It is still way too weak, profit has been down, it is adjusted to 10 billion and that isn’t going to paint a very nice picture.
Also, exports are not such a big part of the US economy. It is weak globally including India, which will not look promising. Down the line, there is politics of all this. It may actually start tomorrow. So the government shutdown is one thing that might happen, the bigger view is the debt ceiling debate.
If we get into that, which in 2011 created a huge uproar and hopefully that will not happen again because that could push down growth. Even without that, this Q4 will probably show 2 percent growth rate, and even in the final part of the year, if we had all this trouble, I don’t think the US economy will grow much faster than 2.5 percent.
Q: So 2.5 percent is what you are looking at for 2014?
A: No, for the final part of the year.
Q: Every time we have hit on a government spending situation in the US, we went through something pretty similar, we had fiscal cliff last year, we had the sequester early this year and it creates panic for a while but then we managed to get past it. This time we are experiencing it when we know that the Federal Reserve is going to start pulling back whether in October-December or early next year, so that confidence of unlimited liquidity isn’t there in this market, what kind of double-whammy impact could this have?
A: It was a surprise at least to some that the tapering didn’t happen in September, it sent a sign to the markets that the Fed will only do this if they really see an improvement in the economy. We were not so surprised because the economy wasn’t really that strong. So in the end we felt this was the right decision for the Fed to take.

Now, the Fed said if the economy shows strength then we may do that (taper) so, don’t be surprised that if the economy is going to accelerate to 2.5 percent or more in Q4, it is going to happen. But if it remains as weak as it is then we are likely to see the tapering further delayed to next year.

Also, there is a change of mindset in the US. We talk about recovery but it is really hard these days. Five years after the financial crisis started to speak about recovery, we are now talking about why is it that the US economy is growing so slowly and really the Fed cannot have this QE going on forever just to popup the economy.

source- http://www.moneycontrol.com/news/international-markets/us-economy-wont-grow-more-than-25-even-by-q4-expert_958147.html?utm_source=ref_article