US rebound should lift China

Updated: 2015-01-16 13:18

By Paul Welitzkin in New York(China Daily USA)

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US rebound should lift China

Standard & Poor's US Chief Economist Beth Ann Bovino addresses the "S&P 2015 Outlooks: Economics, Oil & Consumers" event on Thursday in New York. PAUL WELITZKIN/CHINA DAILY

The US economy is on track to post solid growth in 2015 and this bodes well for countries like China that export heavily into the American market, according to analysts.

However there are potential risks to both the US and China including volatility from Europe and a bad reaction to changes in policies from the Federal Reserve as the US central bank seems headed on a path to hike interest rates later this year, said the analysts from Standard & Poor's (S&P), a unit of financial information provider McGraw Hill Cos Inc.

Speaking at the "S&P 2015 Outlooks: Economics, Oil & Consumers" event on Thursday in New York, S&P US Chief Economist Beth Ann Bovino said the US economy is likely to continue its steady recovery from the 2008 financial crisis. She and her team are expecting the nation's gross domestic product to rise 3.1 percent this year as low oil prices will bolster already improving fundamentals.

"While it (lower crude prices) may hurt energy producers, it will be a boon for the US consumer especially the middle class which has been recovering slowly from the recession," Bovino said.

She said the economic benefit to a typical US family from lower oil prices will work out to about $1,200 this year, a sum she said could tilt economic growth up in 2015.

"A stronger US economy will also be good for exporters like China and South Korea," said Standard & Poor's US Economist Satym Panday. "All of the countries that export heavily to the US will benefit. Countries with manufacturing industries (like China) will also get a boost from lower energy prices for oil and natural gas that will help restrain costs."

Europe is a large trading partner for both the US and China. There are concerns that the region's very slow recovery from the financial crisis combined with a deflation threat could hammer the European economy in 2015, according to Panday. However, European troubles or any other overseas concerns could benefit the US economy, he said.

"The US is always a safe (investment) haven," said Panday. "When turbulence emerges, investors always seem to turn to the US whether it's for Treasury bills or real estate. "

Still there is a dark side for the US to foreign economic troubles. The dollar will get stronger and that will hinder the competitiveness of US exports which have been a bright spot in the last several years, according to Bovino and Panday.

A resurgent US economy may also mean that the Federal Reserve will finally move to increase borrowing costs for the first time in nearly six years. Bovino and Panday said the Fed's target range for its benchmark federal-funds rate, set at zero to 0.25 percent since December 2008, could rise to 1.25 percent by the end of 2015.

Bovino expects the Fed to raise the rate starting in June. She sees the Fed moving to "normalize" rates, noting that in previous recessions the federal-funds rate was already above 1 percent at this point in the recovery. It's been an unusual recovery for the US which prompted the unusual interest-rate policy, she added.

"I think the Fed movement on rates will be heavily dependent on the economic data," said Panday. "For example, if the Fed sees housing or auto sales slow substantially, they will likely hold off on any further rate increases or even pull back on increases."

Bovino said the Fed is likely to implement rate increases in measured way with well-telegraphed steps to avoid disrupting markets.