Jan Hatzius, Goldman Sachs' U.S. chief economist, gave an interview in Brazil yesterday.
Mr. Hatzius is part of a team of analysts known for pessimism. In the interview he lives up to its name. Some of his points:
- Recovery. There will be a recovery (in the U.S.) but it will be slow. It will take time for the Fed and the tax policy makers to change their concerns about unemployment by concerns over inflation." he adds that it will take a long time for the labor market really provide improvement.
- Interest Rates. He does not expect a rise in U.S. interest rates not even in 2011, but it will depend on the performance of the economy.
- The economy grew at an annualized rate of 5.9% in the last quarter of 2009. However, two factors have stimulated this growth: tax policy and the inventory cycle. This will not occur in 2010 with the same intensity of 2009.
- U.S. On average, the U.S. economy will grow 2% per quarter in 2010.
- Believes that in 2011, U.S. growth will stay above potential and unemployment will begin to fall.
- Crisis. The worst of the crisis in the U.S. is behind us. There is a feeling in the financial, securities and stock markets that conditions are much more normal today than they were six months, one year and one and a half years ago. The sector that still suffers pressure is banking. The willingness of institutions to offer credit to customers is still limited.
- U.S. Growth meaning to the world. Asked what does the fact that the U.S. will grow below potential for some time mean for the world, he answered that people overestimate the link between the growth of the world and the United States. Even with an American growth in the range of 2%, he thinks it possible for countries that have had no problems with imbalances, notably the BRIC countries (Brazil, Russia, India and China) to sustain global growth.
- World growth. He believes that world growth will exceed current estimates, despite being more cautious about the expansion of the U.S. The BRIC countries are being driven by domestic demand.
- Yuan. The decision on what to do with the exchange rate in China is strictly of the government of China. The U.S. government knows this. He believes that China, for its own interest, will revalue its currency in 2010 and also in 2011 and that the policy of gradual appreciation of the currency will resume. The U.S. government can take action, but it would be counterproductive.
- Stock Market. When asked about the spectacular performance of the stock market in 2009, he says that stocks were severely undervalued and people were expecting a second Great Depression. Now we are in an area that is closer to neutral. We are not close to another bubble, but neither are we in a time of undervalued prices.
- Risks. The main risk to the global economy today is for the G-3 (U.S., Europe and Japan) to withdraw too early their fiscal and monetary stimulus. In the emerging world, the risk is of overheating. There are signs of that in many of the BRICs. That is why GS is expecting significant interest rates hikes in Brazil (the bank provides a full cycle of increases in the Selic rate of 3.75 points, to 12.5% per year).
- China. Their projection for Chinese GDP growth is 11.4% this year, a pace that is "very, very rapid".