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09 Jan, 2008


Published: 07:00 Wednesday 09 January 2008

By: Colin McClelland, News Editor, New Model Adviser

Chris Probyn, chief economist at State Street Global Advisors, expects sub-par growth in the US to continue through the first half of 2008 but not into a recession.

'More positively, core inflation is unlikely to be a problem, although there are few grounds for optimism on oil prices,' said Probyn. Also, the Fed appears poised to ease rates further, with a cut in the funds target likely in January.

Probyn estimated the chance of recession at around 40%, saying that after a slump in the housing market and capital spending, the economy is now highly reliant on consumers.

'The eventual outcome will almost certainly depend on developments in the labour and financial markets,' he said. 'Although the pace of hiring has moderated since the slowdown began in early 2006, the labour market has stayed surprisingly tight, with the unemployment rate only ticking up to 4.7% from its cyclical low 4.4%.'

But he noted that data have shown jobless claims to be rising, suggesting a potential loosening of the labour market that could slow the growth of personal income and spending sharply enough to turn a soft landing into a recession.

       
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