US Economy is flat

The largest economy in the world has still to expand significantly to reduce their unemployment rate of 9.2 per cent. United States has yet to recover fully from the Great Recession of 2007 to 2009 which was caused by the property bubble bursting. If Japan’s lost decade of 1990s is any indication of how long to pull out from a property-bust recession and slow growth, we can expect US to be in the same situation.

The US economy grew only 1.3 per cent annual rate in the second quarter of this year. The first quarter 2011 Gross Domestic Product (GDP) output was revised downward to 0.4 per cent. The fourth quarter 2010 GDP was also trimmed from an earlier estimate to 2.3 per cent. These growth numbers will not help US economy to create sufficient jobs for the unemployed. With so many people unemployed (14.1 million), we do not expect domestic consumption (which account for 70 per cent of US economic activities) to pick up in order to raise GDP growth rate. With government cutting expenditure to contain rising debt problem, this is going to make its economy worse.

Singapore being an export-dependent nation to grow her economy, will be affected by slower US economy. Another problem faced by Singapore economy is tight labour market where salary cost is going to raise business costs. SMRT for example had already said that wages had put a dent on its profits for the latest quarter. I can see this affecting all businesses alike when the yearly results are released by end of this year. We will need to brace ourselves for further downgrade of Singapore economy if the global economy, in particular US economy, is not improving.

Copyright © 2011, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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