Top strategist predicts slow US rebound

It could take a few years for the United States economy to bounce back. This was the prediction from one of Merrill Lynch’s top strategists at the start of its “Rising Stars” conference in Singapore yesterday.

Mr Mark Matthews, the firm’s chief Asia strategist, said: “We are looking at a protracted recovery that’s going to take the economy two to three years to unwind from its excessive leverage. So, it’s a ‘L’-shaped recovery.”

This was one of the scenarios painted by Singapore Prime Minister Lee Hsien Loong during his May Day Rally.

Mr Lee deemed an “L”-shaped downturn a worst-case scenario, especially if it resembled Japan’s decade-long stagnation after its 1990s slump.

This would be bad for Singapore, which relies heavily on the US for exports.

Despite a gloomier outlook, Mr Matthews believes Asia is now successfully decoupled from the US, thanks to growing demand within the region.

“People are wealthier now and many are millionaires when they weren’t five years ago, so, even if they don’t like the fact that gasoline and food prices are higher, they are spending more than the beginning of the decade,” he said.

In his keynote address, Trade and Industry Minister Lim Hng Kiang noted that China and India would remain “twin engines” propelling Asia forward.

Separately, Merrill’s vice-chairman William McDonough said US Fed rate cuts and liquidity initiatives may have succeeded in containing the US financial crisis.

“It’s the beginning of the end of the sub-prime crisis. We are starting to see situations where some mortgaged-backed securities are being sold,” he said.

Source : Today – 15 May 2008

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