US Faces Longest Recession Since WWII: Economists

Source : The Business Times, January 12, 2009

(WASHINGTON) The US recession will probably be the longest since World War II and could worsen without heavy government spending, according to a closely watched survey of economists released last Saturday. The Blue Chip Economic Indicators poll of 52 economists from top financial firms, major companies and academia found that most expected a tepid recovery to begin later this year, with growth returning to more normal levels in 2010.

A majority of those polled thought the recession would officially end in the third quarter of 2009, which would make this the longest downturn since World War Two.

However, more than half of respondents thought unemployment would peak no earlier than 2010, suggesting that economic pain may linger long after the recession is technically over.

For 2009, the consensus view was that real gross domestic product would fall 1.6 per cent, gloomier than the previous month's forecast for a 1.1 per cent decline. A drop of that magnitude would be the worst yearly performance since 1982.

Merrill Lynch held the most pessimistic view, predicting a 2.8 per cent decline, while Fedex Corp was the most optimistic of the bunch, forecasting just a 0.2 per cent dip.

'Much will likely depend on the relative success or failure of ongoing and prospective stimulus measures applied by government,' Blue Chip's monthly newsletter said, adding that absent a stimulus package, 'prospects would be much darker'.

The consensus opinion was that the stimulus plan would total US$778 billion, with estimates ranging from US$635 billion to US$900 billion. President-elect Barack Obama has encountered some resistance in Congress, but a large spending package is widely expected to be approved next month.

The economists seemed to conclude that government efforts to push down mortgage rates may stall. On average, they expected rates on 30-year conventional mortgages at 5.1 per cent at the end of 2009, roughly where they are now.

They forecast that the consumer price index would fall 0.4 per cent this year, which would mark the first year-over-year decrease since 1955 and no doubt deepen investors' worries about deflation.

The panelists were split on the outlook for the US dollar, which some economists have warned may be headed for a steep slide this year as the US deficit soars and the Treasury Department issues a record amount of debt.

Nearly 48 per cent thought the trade-weighted value of the US dollar would end 2009 higher than its current level. -- Reuters