DEARBORN -- In late 2009, the U.S. economy began showing signs of recovery from the economic downturn that shook the nation. After the second quarter of this year, however, the U.S. Bureau of Economic Analysis estimated that economic growth had slowed to 1.6 percent. Are we on the road to recovery, or are we heading for a double-dip recession? What is the economic outlook for other markets around the world? @Ford posed those questions and more to Ford’s Chief Economist Ellen Hughes-Cromwick.
Q. Many key economists are speculating about a double-dip recession. What is the global outlook from your perspective?
A. In Europe, some markets are experiencing renewed weakness due to the government debt overload. Greece and Spain are examples. Recent economic indicators for the United Kingdom and Germany remain positive, so at the present time, double-dip risks look low for those markets.
In the U.S., growth over the last year has been 3 percent with only modest gains in employment, a very high unemployment rate above 9 percent as well as a challenging housing market despite record low mortgage rates. So yes, there are risks of another slowdown in growth, particularly if there is some kind of shock which is unforeseen and leads to more uncertainty. We are watching this very closely and are attentive to how this could affect our business environment.
Q. What do you mean by “shocks?”
A. An oil price shock or a policy mistake. For example, there were a few programs developed by the government to provide a tax credit to buy a new home, or assistance in restructuring mortgages which exceed the value of the equity or market price for the home. These programs were temporary and small. Such programs, if substantial enough, could start to cauterize the difficulties in the housing market. Targeted stimulus can be effective in reducing the risks to economic growth, or it can be a missed opportunity if not appropriate in size, scope or timing.
Q. Is the company braced for fluctuating economic conditions?
A. Our weekly reports of key economic indicators – such as interest rates, consumer confidence, credit availability, and industrial production – allow for comprehensive reviews of emerging developments in the business environment. The data are very helpful in ensuring business decisions are made with the best information available.
Q. Were there any lessons learned following the recent economic crisis?
A. What we did throughout the period of economic and financial crisis is ensure that we were matching production to demand conditions and that we didn’t end up in a situation where we had excess inventories. We managed that very carefully across the globe – not just in the U.S. but in Canada, Mexico, Brazil, Europe and in Asia-Pacific, although the slowdown in Asia-Pacific was less pronounced.
Q. How would you describe the current business conditions in the major markets around the globe where Ford has operations?
A. North America is transitioning from a very modest recovery to a period of expansion. Usually recoveries have economic growth which is stronger in the initial phase and then eases into an ongoing expansion. Policymakers are aware that they may need to continue to support economic growth, particularly in the U.S. Canada is performing relatively well, with effective housing policy and credit markets which were arguably less over-extended than in other major markets. Mexico’s economy is closely tied to U.S. performance, and growth there is also moderating.
In Europe, there has been uneven growth across the 22 markets. The countries of Ireland, Spain, Greece, Portugal and Italy are trending weaker while the United Kingdom, France, Germany, Sweden, Russia and Turkey are experiencing moderate to good economic growth supported by low interest rates. Growth in Asia-Pacific is strong, although somewhat slower than the very robust gains seen in the first half of this year.
Q. Do you believe that the economic recovery can stay on track in the U.S.?
A. I think it’s feasible based on the incoming indicators. There are risks in terms of the economic terrain right now, and we need to see further improvements, particularly in the employment landscape. We would also need see consumer confidence at least remain at its current level, if not improving. And we need to make sure that policymakers are doing the right things to keep interest rates low, keep good liquidity out there and ensure that banks are lending. All of those factors fall into place for improving economic prospects.