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08 February 2008 at 08:20 IST
Why Africa will survive a US recession
By Jane LouisCAPE TOWN (ResourceInvestor.com) -- The prospect of a recession in the United States and its possible effects on global economies has been a popular topic at the Mining Indaba this week. David Hale, founder of Hale Advisors LLC and China Online, discussed the implications of a U.S. recession on Africa in the final keynote address of the conference, “Can Africa Decouple From a U.S. Recession?”
Hale said that because of strong growth rates in African nations, it is possible for Africa to escape relatively unscathed from a downturn in the U.S. economy. “Africa’s prospects of decoupling are better than ever,” he said.
He pointed out that a recession in the U.S. is not even clear cut. Yes, the housing and automobile markets haven taken a hit, “but the rest of the economy has had fairly good growth,” he said
Hale added that there is a possibility of six to nine months of slow growth in the U.S., but then the Federal Reserve’s policy actions will kick into gear and give the economy a boost by the end of the year.
“Many people on Wall Street and futures traders are forecasting that the Fed could cut (interest rates) again in March,” he said, which means the housing market could be pulled out of its recession by summer.
He didn’t discount the subprime crisis and last year’s flight from asset-backed commercial paper, however. He forecasted that when all is said and done, banks are likely to face subprime-related losses of $300 billion to $400 billion. “There is still a lot of risk out there,” he said.
In addition, he said he does not think the Bush administration’s new tax return policy will help combat a recession because low-income families that benefit the most will simply spend their money at Wal-Mart, where it will all go to China instead of staying in the United States. “I think this package will not be all that effective,” Hale said.
But after two more quarters of weakness, he said growth in the U.S. could be back to 2% to 3% by the end of the year, and he predicts the Fed will start raising interest rates in 2009 to bring down inflation.
“We could once again have moderate growth by the end of the year,” Hale said.
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