US Recession To Extend Into Next Year: Survey

Source : The Business Times, November 18, 2008

(NEW YORK) The United States has entered a recession that will persist into next year, and economies around the world will follow suit, according to a survey of business economists.

After growing 1.4 per cent this year, the US will contract 0.2 per cent in 2009, according to the median estimate in a poll taken by the National Association for Business Economics (NABE).

A majority of respondents said the UK, euro area, Japan, Canada and Mexico are either now, or will soon be, in a recession.

'Business economists became decidedly more negative on the economic outlook for the next several quarters as a result of the intensification of credit- market stresses,' Chris Varvares, president of Macro-economic Advisers LLC in St. Louis and of NABE, said in a statement.

Pessimism about the outlook for stocks, construction, home prices and employment means household wealth and spending will keep weakening, the report said.

Of all the measures undertaken so far to stem the slump, the US Treasury's bank-capital injections and Federal Reserve support for the commercial paper market will prove the most effective, the economists said.

The jobless rate, now at a 14-year high of 6.5 per cent, will climb to 7.5 per cent by the end of 2009, according to the median forecast. Last month, the group anticipated it would peak at 6.4 per cent by the middle of next year.

Car sales, which the group last month projected would stabilise in 2009, are now forecast to keep sliding. Purchases will decline 6.7 per cent in 2009 after dropping 17 per cent this year, according to the survey.

Similarly, the economists said housing starts won't bottom until next year. Builders will break ground on 870,000 homes in 2009, the fewest in 50 years of record-keeping. Property values are likely to fall another 3.5 per cent in 2009 after dropping 6 per cent this year, the group said.

The outlook for home sales was less dire, with almost all respondents projecting purchases would reach a low by next June.

On a quarterly basis, the business economists projected the US would shrink at a 2.6 per cent annual pace from October to December and at a 1.3 per cent rate in the first three months of next year.

The world's largest economy would resume growing in the second quarter of 2009, expanding at a 0.5 per cent pace.

Fed policy makers are likely to hold the benchmark interest rate at one per cent through the third quarter of next year, even as the outlook for growth dims and inflation is projected to cool, the survey showed. -- Bloomberg