Former U.S. treasury secretary Lawrence Summers offered a bleak outlook in a late November article in the Financial Times, the prestigious U.K. business newspaper.
“The odds now favor a U.S. recession that slows growth significantly on a global basis.” He cited a number of factors for this, including indications that the housing sector may be in free-fall in terms of both construction and prices.
Just one day earlier, BP Chairman Peter Sutherland struck a similar note. Speaking on Irish television channel TV3, he said that the current global financial crisis could cause considerable trauma throughout the whole of 2008 because of a lack of understanding about its causes.
Sutherland, who also is chairman of Goldman Sachs International and a former E.U. competition commissioner, echoed the fears of the People’s Bank of China when he said: “The problem is everyone says that we can rely on growth in China and India, but China exports most of its products to the United States so if the U.S. is in a recession, this is a problem.”
Because the background of the crisis is neither fully understood nor fully played out in regard to providing credit and liquidity to institutions, he described the situation as very complicated — and one that isn’t helped by the U.S. economy being in a mess.
Sutherland described as “terribly depressing” an IMF meeting earlier in November and other meetings since of central bank governors. “People didn’t understand the extent of the problem. So I think it’s a dangerous period for the world,” he concluded.
ACC’s Kevin Swift describes Sutherland’s remarks as “fair comment,” noting that just about half of the economic gurus he monitors now are talking about a possible recession.
He also agrees with Summers’ sentiments: “There’s a lot of talk about decoupling and there is no doubt that the relationship between U.S. growth and East Asian growth has changed. However, if the U.S. sniffles, there is still no doubt that the rest of the world gets a cold.”