US recovery needs GDP growth of 5%: Jim Walker

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The US Q2 gross domestic product (GDP) number which was better than what the street was expecting has led to a pull back of the global markets. However there is a concern that GDP growth put up by US is not encouraging and economists are seen hastily cutting expectations for the third quarter.

In an interview to CNBC-TV18, Jim Walker, Founder and Managing Director, Asianomics said that the 1.6% GDP growth of US does not indicate recovery. He elaborated that though the second quarter GDP has beaten expectations it is yet very low.

He estimates that US requires a GDP growth of 5% for a healthy recovery.

Here is the verbatim transcript of their interview with CNBC-TV18's Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying video.

Q: What did you make of the GDP number and do you think it can spark off a durable rally in equities?

A: The best that can be said of the Q2 GDP numbers is that it beat expectations. But we should remember those expectations were incredibly low and the fact that it was revised down from around about 2.4% on first estimated of 1.6% growth rate. At this stage any normal recovery, the US would be growing in excess of 5% a quarter. So people are thinking that 1.6% GDP growth is going to spark a sustainable recovery in equities, I think they are barking up the wrong tree.

This is an appalling number for the point of time that we are at in this so-called recession recovery and in fact it is only because it beat very low expectations that markets reacted positively. My own guess is that markets were oversold and the rally that's running through Asia today will be reversed during the course of the rest of this week.

Q: Was it good enough to dodge the double dip bullet though because the expectation is that even if this goes through as a soft recovery its good news for emerging markets if not any other pocket?

A: No, I do not think its good enough to dodge the double dip at all. Remember, this is a Q2 number that was revived down from 2.4% grew when it was first released to 1.6% and ever since then, including the July figure we have seen, everything has been coming in much softer. In fact if you looked at the US GDP number, nearly all of growth was in April and since then May-June and July have progressively softened.

The people's expectation of 2.5% growth this year in the US, which is already from 3.5%, is probably going to come in far too high. And remember, we are only at the first stages in this quarter of cutbacks in government expenditure and the big European economies, including the UK and of course the weaker European economies as well that have been causing so much of trouble over the course of the last six months.

So emerging markets have got quite a lot of concerns to come if what they are hoping to do is grow through weak recovery in the US. I think what they are going to be doing is facing stagnation by the end of this year and export markets.