'Remarkable' if US avoids 2008 recession - State Street

If the US is able to avoid a recession in 2008 it will be a “remarkable” achievement, according to State Street.

In its latest weekly report, State Street says many growth forecasts could yet prove “overly optimistic”, despite estimates continuing to be revised downward.

“It seems that when the US sneezes, economists still catch colds,” the report states.

State Street predicts more writedowns in residential mortgage-backed securities.

“The first priority for banks will be to shore up their balance sheets and capital ratios,” it says. “Money will be cheaper if interest rates continue to fall. But banks are still likely to be very selective on who they lend to and on what terms.”

While the liquidity move by the five central banks last week could spread some Christmas cheer, State Street warns credit problems are still rife.

“Working markets are a precondition of credit creation, not a guarantor. That depends on banks and other intermediaries,” it says.

“The last week has demonstrated that central banks still have both power and know how. But not even they can engineer happy endings.”

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Hysni Kaso
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