Over the last few weeks, the economic picture has certainly changed -and not for the better. Investors continue to fear the worst: a deep and sustained US recession and the subsequent negative impact on rest of the world. With the US, two key sets of data have been under the spotlight – employment numbers and the Institute for Supply Management’s (ISM) non-manufacturing index.

Employment numbers have turned weak, driving consumer confidence lower and increasing recessionary fears. In fact, the key non-farm payrolls number would need several months of 200,000-plus growth to get back on track to an economic growth scenario – something which is very unlikely to happen.

On the production side, the ISM non-manufacturing index contracted in January, falling to 44.6%. Surprisingly, it is the more defensive sectors of agriculture and Healthcare that have seen particular weakness. In addition, the ISM’s business activity index fell to 41.9% – its first contraction for almost six years.

Has this changed your expectations about a US recession?

We have been saying for sometime now that our expectations were for weak US growth in the first half of 2008, followed by a pick-up in the third and fourth quarters. We remain of the same opinion. In our view, thanks to the aggressive actions of the Federal Reserve(interest rates cut by 125bps within a nine day period and further cuts likely) and the Bush administration’s $150bn fiscal stimulus package, the US economy is unlikely to experience a deep and sustained US recession.