G.O.O.D

The US is still more likely than not to have a recession in spite of the relative stabilisation in the economy in recent weeks, Alan Greenspan has told the Financial Times.

The former chairman of the Federal Reserve said: “I still believe there is a greater than 50 per cent probability of recession.” But, he said, “that probability has receded a little and I think the probability of a severe recession has come down markedly”.

His comments, in an interview with the FT, come as a counter to the increasing optimism in some quarters. In the past six weeks, most economists have scaled back their estimates of the likelihood of a US recession following a better-than-expected jobs report and stronger business activity surveys. Many now think the US will narrowly dodge outright economic contraction.

The former Fed chief also said that it was “too soon to tell” whether the worst of the financial crisis was over, as this would depend on what happened to house prices.

Mr Greenspan estimates that house prices will fall by another 10 per cent from their February levels, for a total peak-to-trough decline of roughly 25 per cent.

If the economy is weak and the market overshoots, house prices could decline by another 5 per cent, he says.