BMO: Risk of “double dip” remains low

Though the BMO Financial Group, like many institutions, now believes the U.S. economy will grow far slower than previously forecasted, it’s confident that a “double dip” recession remains unlikely and that the U.S. government will regain its AAA credit rating in the near future

Though the BMO Financial Group, like many institutions, now believes the U.S. economy will grow far slower than previously forecasted, it’s confident that a “double dip” recession remains unlikely and that the U.S. government will regain its AAA credit rating in the near future.

“Washington has got the message about the need for fiscal adjustment,” said Sherry Cooper, BMO’s chief economist, during a conference call with reporters last week. “The U.S. has the wherewithal to honor its debt obligations. There will be no default.”

While BMO downgraded its forecast for U.S. gross domestic product (GDP) growth to 1.7% for 2011 and 2.5% in 2012 from 2.5% and 3%, respectively, Cooper stressed “that 2.5% growth in the U.S. for next year is relatively healthy given the recent developments” and that “there would not be a double dip recession.”

And though debate continues to rage within the U.S. government concerning the need to increase tax revenue versus reductions in federal spending, Cooper pointed out that the key to bringing the federal budget back into balance is job growth – and many key ingredients to foster such growth are in place.

“Banks have to fulfill their responsibility to support the recovery, and businesses have to invest. Increased consumer spending will trigger rising order books, production and hiring,” Cooper said. “But with corporate earnings at near-record levels and cash balances huge, businesses will boost hiring once confidence improves.”

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