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US recession to end soon, modest recovery seen: Poll

This article was posted on May 27, 2009 and is filed under Press Releases

WASHINGTON: The US recession is set to end “soon,” but continued job losses and plunging house prices point to an economic recovery that will be more moderate than those experienced in previous downturns, a survey showed.

The survey of 45 professional forecasters released by the National Association of Business Economists (NABE) on Wednesday found almost three-quarters expected the economic downturn to end by the third quarter of this year.

The remaining saw the turning point delayed until either the last quarter of this year or the first three months of 2010. None of the respondents believed the recession, now in its 17th month, would extend beyond the first quarter of 2010.

“While the overall tone remains soft, there are emerging signs that the economy is stabilizing,” said NABE President Chris Varvares.

“Business economists look for the recession to end soon, but that the economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”

Recent economic data have suggested that the intensity of the housing-led downturn was starting to ease as some of the government’s record $787 billion package of spending and tax cuts started to filter through the economy.

Over two-thirds of respondents in the NABE survey forecast home sales bottoming by mid-year, with 60 per cent predicting a floor for housing starts within the same time frame.

Still, economists do not see a return to near trend growth until the fourth quarter of 2010, citing rising unemployment, falling house prices and difficulties accessing credit.

The NABE respondents downgraded their growth forecasts and now see the economy contracting 1.8 per cent in the second quarter, bringing the cumulative decline in gross domestic product (GDP) to 3.7 per cent, the biggest since the 1957-58 recession.

In the February survey, they had forecast GDP falling 1.7 per cent in the second quarter. The government last month estimated that gross domestic product (GDP) shrank at a 6.1 per cent annualized rate in the first quarter.

Revisions to these estimates will be released on Friday.

The NABE forecast GDP rising 1.2 per cent in the second half. The economy was seen returning to near trend growth of 2.7 percent in the fourth quarter of 2010, down from prior estimates of 3.1 per cent.

“The key downside risks remain continued large job losses, no improvement in credit conditions, and further sharp declines in home values. These same forces are causing consumers to remain cautious, a feature that NABE panelists think is here to stay,” said Varvares.

Although the pace of job losses is showing signs of losing momentum, the unemployment rate rose to 8.9 per cent in April. The NABE survey forecast the jobless rate surging to 9.8 percent by the end of 2009 before easing to 9.3 per cent by the end of 2010.

Economic slack and gains in labor productivity would keep inflation pressures fairly muted this year, the survey found.

That combined with high unemployment would see the Federal Reserve leaving its overnight lending rate steady at a record low 0-0.25 per cent range until the second quarter of 2010, according to the survey.

However, the inflation picture changes in 2010, with the Consumer Price Index predicted to rise by 1.8 per cent on a fourth-quarter-to-fourth-quarter basis from an estimated 0.4 per cent increase in 2009.

In response to the rise inflation, the NABE survey forecast the Fed lifting the fed funds rate target to 1.25 per cent by the end of next year.

However, a quarter of the respondents expected the benchmark lending rate to be 50 basis points or lower, while another 25 percent forecast it exceeding 1.5 percent by the end of 2010.

source: Economictimes

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