United States economy is unlikely to slip into recession

The United States economy is unlikely to slip into recession, Abby Joseph Cohen, chief investment strategist at Goldman Sachs, said in remarks published yesterday.

‘That does not mean that the probability of a recession is zero. We just think that a slowing in growth is more likely than a recession,’ Ms Cohen told Germany’s Sueddeutsche Zeitung newspaper.

‘The Federal Reserve has shown in recent weeks that it is paying attention and that it wants to boost people’s confidence,’ she added.

While there was weakness in US housing construction and some areas of private consumption, this would be offset by export growth and corporate investment, she said. Goldman expected US economic growth of 1.8 per cent next year, weaker than other institutions are predicting, she said, adding that the bank nonetheless viewed shares as undervalued.

Some finance companies would report terrible earnings figures for the fourth quarter but Goldman still expected single digit profit growth for next year overall.

The ‘fair value’ for the Standard & Poors 500 Index of top US companies for the end of 2008 was 1,675 points, up from around 1,460 now, Ms Cohen said.

The Dow Jones industrial average would be around 14,750 at the end of next year, compared with just over 13,000 now, she estimated.

Ms Cohen told the paper that the trend in US inflation would remain moderate. Central banks did not have to worry about wage increases and could concentrate on the current problems on financial markets.

‘It’s true that over the past week there was some confusion among investors over the Fed’s communication but you have to look to the longer term,’ she said.

‘The decisive factor is that central banks have acted in close cooperation and that is an enormously important signal to the markets as to the availability of liquidity. I am increasingly optimistic: when we are into 2008 everyone will see that the central banks did the right thing.’ - Reuters

Source : Business Times - 22 Dec 2007