Growth should strengthen again in the second half of the year, predicts Swiss Re Chief Economist, Kurt Karl
01 August 2012, New York
After today’s decision by the Federal Reserve to maintain the target fed funds rate at zero to 25 basis points, Swiss Re’s Chief Economist, Kurt Karl, commented: “The US economy slowed in the second quarter, but is likely to be stronger in the second half of the year."
Karl added: "Unfortunately, the uncertainty around developments in the Euro area and the potential US fiscal situation are keeping the risks to the global economy skewed to the downside. However, recent indicators continue to suggest that moderate growth of the US economy will be sustained. The housing sector is finally turning up with new construction strengthening and prices in many markets firming. Moreover, lower gasoline prices are leaving the consumer with more spare cash to spend. We expect real GDP growth of 2.2% this year, strengthening to 2.7% in 2013. As a consequence, yields on the 10-year Treasury note are forecast to rise to 2.1% by end-2012 and to 2.7% by end-2013."
He continued: "In Europe, the risks remain elevated. The Troika's assessment of the Greek adjustment program could result in the IMF's unwillingness to extend more loans to Greece, triggering a Greek sovereign default and potentially an exit of Greece from the Eurozone. In addition, the pending decision on the legality of the European Stability Mechanism (ESM) by the German constitutional court is increasing uncertainty. Japan is still recovering from last year's earthquake/tsunami and reconstruction will help to sustain real GDP growth at around 1.8% this year and 1.6% next year. Growth in China has slowed but both fiscal and monetary policies are poised to boost growth. The Chinese central bank has lowered lending rates twice since June this year. We expect Chinese growth to be around 8% in 2012 and 2013. Other major central banks have also recently further loosened monetary policies: the Fed extended "Operation Twist" until end-2012, the Bank of England added another GBP 50 bn to its Quantitative Easing program and the ECB lowered interest rates in July".
Notes to editors
The Swiss Re Group is a leading wholesale provider of reinsurance, insurance and other insurance-based forms of risk transfer. Dealing direct and working through brokers, its global client base consists of insurance companies, mid-to-large-sized corporations and public sector clients. From standard products to tailor-made coverage across all lines of business, Swiss Re deploys its capital strength, expertise and innovation power to enable the risk taking upon which enterprise and progress in society depend. Founded in Zurich, Switzerland, in 1863, Swiss Re serves clients through a network of over 60 offices globally and is rated "AA-" by Standard & Poor's, "A1" by Moody's and "A+" by A.M. Best. Registered shares in the Swiss Re Group holding company, Swiss Re Ltd, are listed on the SIX Swiss Exchange and trade under the symbol SREN. For more information about Swiss Re Group, please visit: www.swissre.com or follow us on Twitter@SwissRe.
The material and conclusions contained in this publication are for information purposes only and the author offers no guarantee for the completeness of its contents. The statements in this report may provide current expectations of future events based on certain assumptions. These statements involve known and unknown risks, uncertainties and other factors which are not exhaustive. The author of this report undertakes no obligation to publicly revise or update any statements, whether as a result of new information, future events or otherwise. Swiss Re shall not be held responsible in any way for, and specifically disclaims any liability arising out of or in any way connected to, reliance on or use of this publication.
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