Global Insight's Nariman Behravesh, Offers His Top 10 Economic Predictions for 2008
Thursday, December 20, 2007JEFF YASTINE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Our guest tonight says the U.S. economy will be in near recessionary conditions in the New Year. Joining us now with his top 10 economic predictions for 2008, Nariman Behravesh, chief economist at Global Insight and Nariam, thanks for rejoining us here at NIGHTLY BUSINESS REPORT.
NARIMAN BEHRAVESH, CHIEF ECONOMIST, GLOBAL INSIGHT: Thank you.
YASTINE: Let's go through these because we certainly have a limited time. Your top economic prediction for 2008, what it is?
BEHRAVESH: Basically we're going to be very, very close to a recession. We're looking at three-quarters of less than 1 percent growth. This makes the U.S. extremely vulnerable. What it means is we're in the danger zone basically right now as far as the economy is concerned.
YASTINE: Then we have a sheaft of these in our graphics if we can bring those up. The top five here, U.S. economy in a danger zone, global growth slows, China continues rapid growth, oil prices remain high and inflation drops as we see them, global growth slowing. Explain that one for us briefly.
BEHRAVESH: Well, basically we've got a global credit crunch going on, but the epicenter of that is in the U.S. So the U.S. will slow a lot more and has been than the rest of the world. Europe will slow, Japan will slow, but not as much as the U.S. China on the other hand...
YASTINE: I was going to say, how can we have this global slowdown and yet at the same time see just a very small dent in China's net growth rate?
BEHRAVESH: Well, China's sort of marching to the beat of its own drummer so to speak. Credit growth, for example, continues to be very strong there, money supply growth and so on. Interest rates are very low. So China's really not being at all affected by this and it's going like gangbusters. Our worry is after the Olympics, the central bank's going to step on the brakes. So after the Olympics, we could see a significant deceleration in China, but that's not until after the second, say August of 2008.
YASTINE: Now, again, how can you have one of your other topics there is about oil prices remaining high. How can we have a slowdown and not see that price reflected in oil, which is the ultimate sort of global commodity?
BEHRAVESH: That's a very good question. We do have oil prices coming down a little bit. Markets are still very tight. And supply just has not kept up with demand. There hasn't been enough investment. So yes because of the demand weakness, oil prices have come down, but they're going to stay probably above $75 for some time.
YASTINE: And the final one was about core inflation again and that should remain or should edge down. That should be good news if you're a central banker anywhere in the world trying to cut rates.
BEHRAVESH: That's correct. Basically what you've got is as the economy slows down, that will put downward pressure on core inflation, and that will give most central banks room to cut more if they need to.
YASTINE: All right. Now that's a good place to step off into your second set of economic predictions for 2008, and the top one there, the Federal Reserve will keep cutting rates. Explain that one for us.
BEHRAVESH: Well, the dangers in the U.S. economy are predominantly on the down side. As I said, inflation not a serious threat. If we're looking at very, very weak growth, that will mean that the Fed will cut. We think the Fed's going to cut three more times in the next three meetings -- January, March and May.
YASTINE: You have your next one is about the housing sector bottoming. For anybody who still owns a housing stock, I'm sure they're glad to hear that as well as the rest of us who may own real estate. Talk about that one for a second.
BEHRAVESH: Well, activity will bottom out probably in the summer of '08. By that we mean housing starts and construction, but prices could actually continue to fall through 2009. So we're going to look at a very soft housing market even beyond that sort of trough in the middle of '08.
YASTINE: Let's briefly go through our final three. We've got about a minute left. So the dollar reaching a trough, the current account deficit here in the U.S. continued to improve and we'll see the U.S. economy vulnerable to shock.
BEHRAVESH: We think in the second half of '08, the economy will begin to recover. That will help the dollar to recover somewhat. But the fact that the dollar's been weakening over the last five years has helped our trade picture immensely. So we're seeing vast improvements there. Finally, we've been looking at sort of the potential for two shocks really bringing this economy to its knees. The first shock for the sub-prime sector meltdown basically. The second one high oil prices. If oil price go back up again, to say $95 or $100, then we're in serious trouble. We could be headed to a recession.
YASTINE: In just a couple of seconds, what do you think that says about the stock market?
BEHRAVESH: Well, I think the stock market's going to struggle over the next year. If you looking at a near recessionary situation, profits aren't going to do that well, so the market will struggle.
YASTINE: All right, Nariman, thanks for your appearance here on the program. Our guest tonight, Nariman Behravesh, chief economist at Global Insight.
