The US economy can still grow by as much as 2.5 percent this year without a third round of quantitative easing, despite a raft of bad economic data, Rajiv Biswas, chief economist at IHS Global Insight told CNBC on Monday.
"I think obviously we're in a soft patch for the US economy right now. Q1 was relatively soft and Q2's looking pretty soft too after seeing that employment report, but growth is still positive, we still saw private sector jobs up 80,000 in the latest jobs report and if you look at the ISM outlook indices that we saw for May, although manufacturing was softer, it was still positive," Biswas said, referring to the Institute for Supply Management (ISM) non-manufacturing activity report.
Pointing to growth within other sectors as signs of some recovery, he said consumer confidence would grow as oil prices eased off.
"One thing that perhaps many people haven't noticed is that the ISM non-manufacturing index actually strengthened in May somewhat and the employment index for non-manufacturing improved.
So there are still positive signs and I think when we look at the second half, with oil prices having come off a little and that having been an important reason why we're seeing this soft patch in Q2, I think there is still scope for the US to achieve 2.5 percent growth this year,” he explained.
No Need for QE3?
Biswas said that although the second quarter would be sluggish, momentum would come in the latter half of the year.
He believes there isno need for the Fed to embark on a third round of quantitative easing.“I think at the moment our expectations are that we'll still see second half momentum stronger than the first half and we still don't expect that there will be a need for QE3, given our expectations that corporate profits are still strong and that will flow into business investment The weak dollar has been helping the exports sector and manufacturing jobs through much of this year so far,” he said.
He added that that the impact of the Japanese earthquake on the US and Asian economies should not be underestimated.
“Of course we also have to be conscious of what's been going on the other side of the world, that Japan had a huge natural disaster which hit industrial production and that's having supply chain ripple effects throughout the world, including in the US,” he explained.
However, he said as the Japanese rebuilding effort gets underway later this year, global economic data will improve.
“We do expect that Japanese production will start coming back towards normal through the course of Q3 and Q4 so this then turns into a more positive dynamic and on top of all that you have the reconstruction spending, with $300 million of reconstruction needed. Some of that's government funded, some of that's private sector funded and that will start to ramp up in the second half of this year,” he said.
“What were seeing right now in terms of a soft patch in the Asia Pacific region should start to show some improvement in the second half.”