Subprime bad loans not big enough to cause recession: HSBC

The US markets have been dealt a major knock after the panic which has been coming through from the housing market. Peter Morgan, Chief Economist, HSBC gives his views on the US economy.

Morgan believes that the impact of US housing market panic will not be enough to tip the economy into recession. He adds that although things look bad for the sub-prime sector, it is not as bad for the housing market.

Excerpts from CNBC-TV18's exclusive interview with Peter Morgan:

Q: How bad is the data from the US housing market?

A: The data in the sub-prime section was certainly bad, it was the highest level in four years. The data in the non-prime mortgages only picked up slightly in terms of bad loans. So it is certainly very negative for the sub-prime sector but doesn’t look so bad for the housing market overall.

Q: Is it a sign though that there is more to come by way of damage and this might have a significant hit on the economy or is this as bad as it can get?

A: It is certainly trending up at this point. So we can’t really say that this is the peak yet and given this is probably a kind of lagging indicator, it seems quite likely that we will see further increases. However, I still doubt that it will be a big enough negative impact to actually tip the economy into recession.

Q: Are you saying that the market is overreacting or do you think it is justified to an extent?

A: I am not sure if I would call it a panic but there is some ongoing problem in the sub-prime sector, so this kind of reaction is probably, for the most part, justified. But in terms of the longer-term prospects, it is not that bad.