S&P expert: Subprime crisis likely to worsen

The agency's chief economist says that country is 'not halfway' through current housing crisis.


MUMBAI (Dow Jones/AP) -- The U.S. subprime crisis is likely to get worse, dragging down U.S. economic growth, the chief economist of Standard & Poor's said Tuesday.
"The panic has subsided but the housing market has not hit bottom yet. It will not hit bottom until winter. Housing prices won't hit bottom until next summer and the losses won't peak for another two years, until 2009," said David Wyss at a press briefing in Mumbai. "We are not halfway through this crisis yet."
S&P forecasts the U.S. economy to grow 2 percent in 2007 and also in 2008, while the global economy is expected to grow 3.6 percent and 3.5 percent in the same period.
"We are looking at another year of sluggish growth and that's consistent with an uptick in the unemployment rate to 5 percent," Wyss said.
However, credit losses stemming from the U.S. subprime crisis have not been that great, he said.
The U.S. Federal Reserve estimates that credit losses resulting from the U.S. subprime crisis are approximately $150 billion, less than 1 percent of the $16 trillion U.S. mortgage market.
Subprime: The escape of the enablers Wyss also said he expects the U.S. Federal Reserve to cut its funds rate by another quarter-percentage point by the end of 2007.
The Fed cut its benchmark interest rate target by half a percentage point to 4.75 percent last month after a weak August payrolls report and amid the summer doldrums in financial markets.
However, the strong September numbers and a revision in the August numbers have led some market participants to discount the chances of another rate cut in the near term.
Wyss said he expects financial markets to remain strong overall.
"If they were expecting a recession, the drop in earnings would more than offset what the Fed is doing," he said. "The fact that stock markets are strong shows financial markets are heading for expansion."

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