Federal Reserve chairman Ben Bernanke might be signalling more rate cuts to ward off recession but economists say the recession is inevitable. The only thing they can't agree on is what shape it's going to be. London based investment consultancy Independent Strategy says it won't be a 1929-style depression but "a long U-shaped period of low growth and poor price performance for most financial assets."
In its report to clients, outlined here, the firm says we ain't seen nothing yet. "Indeed, we are not even halfway through," the report says. "As well as the sub-prime mortgage crisis, there will be losses on prime mortgages as house prices fall in the US and Europe and defaults rise. And losses on consumer and automobile credit, commercial real estate and corporate debt have hardly started. Finally, there are the more esoteric losses on credit insurance and derivatives. When all this is done, we expect total losses of about $1.4 trillion globally, or 2.5% of world GDP."
A "U"-shaped pattern means the economy will drag along the bottom for a long time before it picks up.
Others are predicting a "V", or "W" trajectory, according to this news report.
Mercifully, no-one is predicting an "L". Yet. Problems are projected for tenants who currently pay rent – before long they may turn into sitting tenants.
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