U.S. exports, which supported economic growth until collapsing at the end of 2008, are unlikely to fuel a rebound this year, a Federal Reserve official said on Thursday.
In my economic outlook for the remainder of 2009, I do not expect a sudden return of exports as a driver of recovery in the United States, Atlanta Fed President Dennis Lockhart said in remarks prepared for delivery to a conference.
A decades-long expansion of global trade came to a juddering halt in the fourth quarter last year as global trade financing collapsed amid a broader credit freeze, Lockhart said in a speech to a conference on food and water stability organized by the Global Interdependence Center and Bank of France.
The recent sharp contraction of trade appears to be far more severe than would be expected given the decline in global economic activity, he said.
The decline in trade could be blamed in part on the disruption of interbank lending in the financial crisis, which began with a collapse in U.S. housing markets but has spread around the world, Lockhart said.
Banks have reduced risks, including trade credit, while charges for letters of credit, a staple of trade, have risen, he said.
British Prime Minister Gordon Brown, who hosts a summit of G20 leaders next week, has promised action there to help tackle a shortage of trade credit.
Lockhart said tensions surrounding efforts to stabilize the U.S. banking and financial system were understandable, but were a distraction from the important task of healing the shattered financial system.
His remark was reference to the U.S. public outcry over generous financial bonuses paid to executives of insurer American International Group even as the firm benefited from a government rescue valued at as much as $180 billion.
Restoring the banking system was a key precondition to reviving trade, Lockhart said.
Removal of so-called toxic assets from bank balance sheet is an essential step toward recovery, he said.
Adjustments to fair value treatment of assets trading in illiquid markets were also welcome, he said, referring to an accounting change that the financial industry has argued is essential to restore confidence.
The U.S. accounting rule-making agency, the Financial Accounting Standards Board, is considering a proposal that would let companies exercise more judgment in determining if a market for an asset is inactive and if a transaction is distressed.
(Reporting by Anna Willard, writing by Mark Felsenthal, editing by Mike Peacock)