NABE Panel: Recession to End in Second Half of ’09; Above-trend Growth in 2010


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“The steady drumbeat of weak economic and financial market data has made business economists decidedly more pessimistic on the economic outlook for the next several quarters. Credit conditions remain tight and declines in equity markets and home values, combined with significant job losses, are causing consumers to rein in discretionary spending. While a few reports offer some glimmer of hope, a meaningful recovery is not expected to take hold until next year. Further pronounced weakening in housing and deteriorating labor markets underscore the risks for 2009,” said NABE President Chris Varvares, president, Macroeconomic Advisers. “Following a sharp 5.0% (annual rate) contraction in the first quarter of this year and another 1.7% drop in the second quarter, NABE forecasters expect real GDP to rise at a sub-par 1.6% rate in the second half. This leaves a decline of 0.9% in 2009, on the heels of a 0.2% decline in 2008. The unemployment rate is forecast to rise to 9.0% by year-end and inflation is expected to moderate, as economic slack builds and as oil prices are forecast to remain relatively depressed. The good news is that economic activity is expected to turn up in the second half of the year and 2010 is expected to see modestly above-trend growth of 3.1%.

Among the key forecasts of the February 2009 survey:

• The current downturn will most resemble that of 1973-75.

• Real government spending will advance 2.8% in 2009.

• The consumer price index will decline 0.8% in 2009, as already large
commodity price declines pass through to consumer prices.

• The jobless rate will peak at 9.0% by the end of the year. House
prices will decline 5% during 2009, though the S&P 500 index is
expected to rise a solid 8% by December 31, 2009.

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