Recession in US should be over by next year

Recession in US should be over by next year
The Economic Times, June 24, 2009, Page 10

MARK Zandi, chief economist at Moody’s Economy.com, expects the recession in the US to end by the end of 2009 and a modest recovery through 2010. In an interview with Andy Mukherjee of ET NOW, Mr Zandi says the banking system in the US will be in a better shape by 2011-12.

The World Bank came out with a report on Monday, saying the recession will deepen further. Do you think the $13 trillion that the US government has spent, lent or guaranteed, in addition to the stupendous easing of monetary policy, will put an end to the recession this year?

Yeah, that’s right. I think the policy response, the monetary and fiscal stimulus that’s now starting to kick in and efforts to shore-up the banking system are working reasonably well, and the recession should be over by the end of the year.

Well, if the recession is coming to an end by December, then what are your growth expectations for the US economy next year? Is it likely to record a GDP expansion?

Yeah, I expect the recession to end this year, and then in 2010 we’ll see some growth, not a recession. But it will be a modest kind of growth. We’ll be uncomfortable with it, which will rise through the first half of the year. It won’t be until 2011-12 before we start to see a meaningful growth. The key reason for that is there are large parts of our economy that are struggling — housing, vehicles — and while the banking industry is better, it’s not really providing the kind of credit. So I think we’ll get just as much growth to get out of recession but not more than that.

S&P recently cut its credit ratings for 18 banks in the US. Is this a pointer to continued weakness in the US banking system? But we’ve also seen big US banks return TARP funds to taxpayers and they’re now able to raise money from capital markets on their own. So that’s a green shoot, right?

Yeah, we’re past the worst of it and the recession can come to an end, but as you point out credit conditions and underwriting standards are still very tough and they are not going to get any easier, so that’s the reason. In the next year, the economy has some difficulty getting going. I think by 2011-12, the banking system will be in a much better shape and those underwriting standards will start to ease up. We’ll get more credit and the economy will start to get going again, but it will be 2011-12 till that happens.