S&P says US subprime crisis won’t peak till 2009

S&P says US subprime crisis won’t peak till 2009

Saikat Chatterjee and Anurag Joshi / Reuters

Mumbai: The US subprime housing crisis will not peak until 2009 and total defaults could reach $150 billion, but robust emerging markets would help keep global growth strong, Standard and Poor’s said on Tuesday, 9 October.

The ratings agency said it expected world economic growth to grow 3.6% in 2007 and 3.5% in 2008. The US economy would lag at 25 in both years, a growth rate S&P’s chief economist described as sluggish.

“World growth remains strong despite the weaknesses seen in the US economy — especially in emerging markets because of healthy domestic demand conditions and export strength to non-US market," S&P said in a report released in Mumbai.

“The fact that the US slowdown is concentrated in housing, which has relatively low import content, helps," it said.

Housing was the major weakness in the US economy and the subprime crisis — which roiled global markets in late July and August — was far from over, although its shock value was wearing off, the chief economist, David Wyss, said.

“We think in the United States the housing market is not going to bottom until winter. We think the losses in these sectors won’t really hit their peak until 2009," he said.

That would feed through to unemployment and remain a brake on overall growth.

“Housing starts are going to drop further, the unemployment rate is going to tick up further, we are expecting another year of sluggish US economic growth," Wyss said.

“We are not halfway through with this crisis yet."