UNITED STATES - The American economy is moving again and all signs point to a strong recovery so pnly a sharp rise in commodities prices - especially in oil prices - can spoil the party, according to Robert Wescott, economics adviser to former US president Bill Clinton.
The situation in the United States does not parallel Europe's precisely as the absence of certain social and economic safety nets, such as part-time employment, means that economic setbacks in the US are overcome more quickly. But the US's crisis and recovery are reflected in our countries, albeit in more modest fashion.
Wescott is head of Keybridge Research, an economic research consultancy that includes G7 governments among its clients.
And he believes many economists are taking an excessively gloomy view of the future. Pessimists say the Obama administration's stimulus package has run its course, even though some 70% of the stimulus money has yet to be paid out. So the effects of Obama's fiscal stimulus have yet to be fully felt.
Furthermore, inventories are now so shrunken that the need to build them up again could generate a positive economic impetus that could last for one or two years - far longer than the two short quarters that many economists are expecting. And even though the free-spending American consumer as the driving force behind the economy seems for now to be a thing of the past, US consumers seem at last to be reaching cautiously for their wallets once again. So Westcott is feeling positive.
"The labour market, which is still heading downwards, will recover within three months. In the period between March and May 2010 I don't rule out some 300,000 new jobs being created per month. And GNP will grow more strongly than expected in 2010. The consensus forecast sees GNP growth of 2 to 2.5 per cent in 2010. But I think we could see twice that," said Wescott.
And given this environment, the US Federal Reserve will begin hiking interest rates far earlier than is currently assumed, he predicted.
"When the labour market and the economy start recovering strongly, the Fed will have no other choice than to begin raising rates in the first half of the year," continued Wescott.
Looking at inflation, there is nothing to fear from the American side for the time being, according to Wescott, who also regards the possibility of American state debt running out of control as an unlikely scenario.
"The Republicans will manage to grab the seats they need from the Democrats at the mid-term elections, allowing them to implement their budget-control agenda. This will make further growth of the budget deficit politically less likely. There will be limited scope for inflation, and it certainly won't be an issue until 2013-2015," he argued.
But there are still a few risk factors that could spoil this optimistic prospect, Wescott acknowledged. The most important of these is commodities prices. These are rising faster and to higher levels than in previous recessions, and this applies to the oil price especially. "The most obvious explanation available is that China is driving up demand. But China only accounts for 9% of the worldwide demand for oil. That isn't enough to explain the rising oil price."
Wescott has no explanation for this tendency, and for him it is a cause for concern. "If this development continues, it could act as a break on the economic recovery."
The role of China is also a cause for concern. To the annoyance of the US and other countries, China is keeping the exchange rate of its national currency artificially low. Until now, Americans have resisted taking protectionist measures, responding to pressure from the corporate sector, which wants to keep the Chinese on side. But a change is coming, Wescott believes. The current row between China and the Goggle, the internet giant, is a sign that relations between big business and the Chinese are souring.
On the one hand, China and the US are bound to each other because China holds an enormous share of America's state debt. "On the other hand, China will have to let its currency appreciate and increase its consumption, because otherwise it will be impossible to avoid the emergence of tensions that will have a negative impact on bilateral trade relations," claimed Wescott.
Mariska Van der Western is editor of IP Nederland, sister publication to IPE.