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Analyst: Chip market gloom will pass

Posted: 23 Dec 2008 ?? ?Print Version ?Bookmark and Share

Keywords:IC industry? chip market? semiconductor recovery?

While it's true that, when viewed on an annual basis, the 2009 worldwide economy will be classified as a global recession and the 2009 IC industry will register negative growth, but on a quarterly basis, a 'bottom' period and a 'recovery' period are highly likely to be encountered within the next 9 months.

Let's step back, take a deep breath, and look at some very powerful and positive forces that will be at work in 2009.

1. Stimulus packages
China has announced a $586 billion economic stimulus program to take place throughout 2009 and 2010, the Euro-zone recently announced a $256 billion stimulus package, the United Kingdom could have a $45 billion package itself, and the United States is expected to announce up to an $850 billion stimulus package in late January or early February of next year.

There is little doubt that, in total, worldwide stimulus packages, including from Taiwan, Singapore, Japan, Australia, Brazil, etc., will likely approach $2 trillion over the next two years. This is powerful medicine for a sick economy.

2. Lower interest rates
U.S. interest rates are at an historic low (now zero percent to 0.25 percent) and are expected to remain at these levels for some time. Moreover, the rest of the world is also moving to significantly lower interest rates.

In addition to record low interest rates, the U.S. Federal Reserve is initiating a massive purchase program for mortgage-backed securities. Already, 30-year fixed loans have dropped below 5 percent. Many economists now expect 30-year fixed rate mortgages in the United States to drop to as low as 3.5 percent over the next six months.

This could easily cause the biggest surge in refinancing of mortgages the United States has ever seen and will surely have a major positive impact on the U.S. housing market in the second half of 2009.

3. Falling oil prices
A strong positive factor for the worldwide economy heading into 2009 is the relatively low price of oil. As of this writing, the price per barrel of oil was about $40, down from $147 per barrel in July of this year.

As a result, U.S. gasoline prices averaged only $1.65 in early December after reaching a high of $4.11 this past summer. This is an extremely important factor for the future of the worldwide economy since for every one cent of decline in gasoline prices, an annualized savings of $1 billion is realized!

Having the exact opposite effect of rising oil prices, low oil prices have historically set the stage for a rebound in the worldwide economy.

With the average price per barrel of oil expected to decline by over 30 percent in 2009 as compared to 2008, the price of oil will transition from being a 'headwind' on the fortunes of the 2008 worldwide economy to a 'tailwind' next year.

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