The Federal Reserve will contend with a weak U.S. economy by reviving its stimulus programs as the world’s central banks push harder to spur growth, said Albert Edwards, head global strategist at Societe Generale.
He said this week’s report on gross domestic product, a measure of total economic output, highlighted the country’s struggles to recover from the worst recession since the Great Depression.
“The first quarter U.S. GDP data was a major disappointment to the market as business investment declined due to the intensifying U.S. profits recession,” Edwards said in an April 30 report
obtained by Newsmax Finance. “Only the biggest inventory build in history stopped the economy subsiding into a recessionary quagmire.”
GDP expanded 0.1 percent in the first three months of the year, disappointing Wall Street economists who had forecast meager growth of 1 percent on average because bad weather dampened construction and retail sales. Total private inventories grew by a record $121.9 billion during the quarter.
“Sales are declining on a year-over-year basis, but we are assured this is due to the cold weather,” he said. “But if it is not, and sales do not surge in coming months, then the economy is heading into recession.” GDP would have fallen 2.5 percent since December without inventory growth, Edwards said.
He established his reputation as a perma-bear in 1996 with his Ice Age thesis that argued that stocks will collapse and bond values will climb because of deflation.
Edwards is most optimistic about Japan, but not because the country is showing signs of a self-sustaining economy. He’s bullish because the Bank of Japan’s massive asset-buying programs, known as “quantitative easing,” will crush the value of the yen and trigger an inflationary boom.
Japan’s national debt is the highest in the world at about 260 percent of annual GDP. The country needs to reissue about 60 percent of that debt every year, leaving the government with few choices except quantitative easing, Edwards said.
“The BoJ will become more and more aggressive and inventive for the simple reason that Japan is bust,” Edwards said. ”The Japanese authorities will probably lose control of the inflationary situation and that is why I am so bullish.”
Looking ahead to second-quarter GDP growth, the most accurate forecast of the U.S. economy doesn’t see a big bounce ahead, according to Steve Goldstein of MarketWatch
The Atlanta Federal Reserve’s “nowcast” predicts a 0.9 percent gain in GDP in the second quarter, compared with the consensus forecast of more than 3 percent. The Atlanta Fed predicted 0.1 percent growth in the first quarter, making it the most accurate forecast.
“The U.S. hasn’t suffered two straight quarters of sub-1 percent growth since the beginning of 2009, when the country was still in a recession,” Goldstein said.
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