US economy to grow 2.3 percent, escaping recession: IIF

A group of the world's biggest international banks said Thursday the struggling US economy likely would escape a recession in 2008 and grow 2.3 percent for the year. "There are important signs of economic resilience which suggest that recession can be avoided in the US," Charles Dallara, managing director of the Institute of International Finance (IIF), said in a statement.
The organisation, which groups 370 financial businesses in 65 countries, estimated US gross domestic product (GDP) growth of 2.3 percent this year, sharply higher than most forecasts currently circulating from other sources.
The World Bank and the International Monetary Fund each are forecasting a maximum GDP rate of 1.9 percent in the United States, where the Federal Reserve itself has said it would lower its latest estimate of a range between 1.8 and 2.5 percent.
The IMF repeated Thursday that it does not see the United States slipping into recession, despite financial turmoil from a US mortgage crisis stemming from a housing slump.
According to the Washington-based IIF, the US economy would not even slow this year because the trade body estimated it also grew by 2.3 percent in 2007. "The most pressing issue facing the US economy in 2008 is whether the recent problems in the US subprime markets will be sufficiently serious to push the economy into recession in 2008," the IIF said in its report "Global Economic & Capital Markets Forecasts 2008."
"Our view is that a recession is not the most likely outlook, although a phase of below-trend growth seems in prospect," it said. The financial markets turmoil that started in August was initially sparked by rising defaults on US subprime mortgages, home loans given to people with poor credit histories, amid rising interest rates and falling house prices.
"We are among many forecasters who see a period of serious weakness in the first half of this year but importantly we see ingredients for a rebound in the second half of this year in the US economy," Dallara said at a news conference.
The IIF also highlighted an expected increase in inflationary risks, particularly in the second half, under surging commodities prices. In addition, the central banks, particularly the Fed, are seen as ending a spate of credit easing.
According to the IIF, the Fed likely will lower its base federal funds rate, the overnight lending rate banks charge each other, by a half point at the Fed meeting on January 29-30, and a further quarter point in the following months, but then stop.