Merill Lynch says US in recession, but Asia to remain strong on consumer spending

By Rachel Kelly, Channel NewsAsia | Posted: 14 May 2008 2100 hrs

SINGAPORE : The US economy is heading towards a recession and this will become more apparent in the second half of this year, according to analysts at a conference organised by Merrill Lynch on Wednesday.

But they said Asia will not be as badly affected, and its strong consumer spending will buffet the region from the US slowdown.

Merrill Lynch said the world’s largest economy is already in a recession, and it expects to see a prolonged L-shaped recovery. This means the US may take a longer time to emerge from the economic doldrums. But Merrill said this is not necessarily negative for Asia.

Said Mark Matthews, Chief Asia Equities Strategist with Merrill Lynch: “I don’t think its necessarily a bad thing for us if the recession is in a L-shaped pattern, because we have much more resilient consumers in Asia than we did 5 years ago.

“Many people are wealthier now than they were 5 years ago, and there are many more millionaires in Asia than there were 5 years ago. So, even if they don’t like that fact that gas and food prices are higher, they are generally doing better and spending more than they were at the beginning of this decade.”

Merrill Lynch said a key indicator of a recession is a slump in the housing market. It added that it expects the housing market in the US will see another 15-20 percent downside.

Merrill Lynch believes however that Asia will not be as badly affected by the US slowdown.

Speaking at the forum on Wednesday, Minister for Trade and Industry Lim Hng Kiang said Asia needs to learn from the US housing crisis.

“In this regard, lessons from the sub-prime crisis are timely. As Asian capital markets evolve, investors and risk managers alike will need to understand the innovations and the products as they develop. I believe that some key issues in the securitisation markets will also have to be addressed,” said Mr Lim.

The first set of estimates show the US economy growing at an annualised rate of 0.6 percent in the first quarter. - CNA /ls

http://www.channelnewsasia.com/stories/economicnews/view/347737/1/.html