CAPE TOWN (ResourceInvestor.com) -- The prospect of a recession in the United States and its possible effects on global economies has been a popular topic at the this week. David Hale, founder of Hale Advisors LLC and China Online, discussed the implications of a U.S. recession on Africa in the final keynote address of the conference, "Can Africa Decouple From a U.S. Recession?"
Hale said that because of strong growth rates in African nations, it is possible for Africa to escape relatively unscathed from a downturn in the U.S. economy. "Africa's prospects of decoupling are better than ever," he said.
He pointed out that a recession in the U.S. is not even clear cut. Yes, the housing and automobile markets haven taken a hit, "but the rest of the economy has had fairly good growth," he said
Hale added that there is a possibility of six to nine months of slow growth in the U.S., but then the Federal Reserve's policy actions will kick into gear and give the economy a boost by the end of the year.
"Many people on Wall Street and futures traders are forecasting that the Fed could cut (interest rates) again in March," he said, which means the housing market could be pulled out of its recession by summer.
He didn't discount the subprime crisis and last year's flight from asset-backed commercial paper, however. He forecasted that when all is said and done, banks are likely to face subprime-related losses of $300 billion to $400 billion. "There is still a lot of risk out there," he said.
In addition, he said he does not think the Bush administration's new tax return policy will help combat a recession because low-income families that benefit the most will simply spend their money at Wal-Mart, where it will all go to China instead of staying in the United States. "I think this package will not be all that effective," Hale said.
But after two more quarters of weakness, he said growth in the U.S. could be back to 2% to 3% by the end of the year, and he predicts the Fed will start raising interest rates in 2009 to bring down inflation.
"We could once again have moderate growth by the end of the year," Hale said.
Africa will also be able to decouple from a U.S. recession because of its strong relationship with China, according to Hale. "China will be able to overcome (a U.S. recession) because it has tremendous growth outside America," he said.
Urbanisation is causing China's resources demand to soar, allowing commodities prices to survive slow growth in the U.S. In addition, China is still very poor, giving it a lot of room to grow, according to Hale.
"China will keep re-valuing, making their country more rich," he said.
Africa benefits from this because its nations are able to help provide China with its increasing commodities needs, Hale said.
"Africa is attracting large amounts of investments to develop its resources," he said, citing examples of Chinese loans to the Democratic Republic of Congo for copper access and to Angola for oil.
Africa's new developments are "very exciting stories", he said. He pointed out that Burkina Faso will have eight new gold mines in three years, and Zambia's mine output is headed toward a record high. In addition, Zimbabwe could be an interesting investment opportunity in a few months if President Robert Mugabe is successfully removed from office.
When everything is taken into account - not just a possible U.S. recession - Hale said that the global economy is not actually in that much trouble.
"We have had in the past year a remarkably benign global economy," he said, and Africa has strong enough prospects to continue its growth.
