US economy weak, but worst is over: economist survey

Source : Business Times - 19 May 2008

The US economy appears to have weathered the housing and credit crisis but will show sluggish growth for the near future, a survey of business economists showed on Monday.

The National Association of Business Economists survey of 52 professional forecasters suggested that the economy will avert a disaster but will remain weak into 2009.

‘Although housing and credit markets will gradually loosen their grip, US economic growth is expected to only slowly return to health,’ said Ellen Hughes-Cromwick, NABE president and chief economist at Ford Motor Company.

‘While our panel anticipates an improvement in credit markets and a bottoming out in housing this year, the forecasters have marked down their estimates of growth for both 2008 and 2009.’ The NABE panel projects on average gross domestic product growth at a tepid 0.4 per cent annual rate in the second quarter, after two straight quarters of output expanding at a 0.6 per cent pace.

The panel is still split on whether the current episode will be classified as a recession, which is generally defined as two consecutive quarters of decline but is subject to an official call by an economic panel.

In the NABE survey, 56 per cent of the forecasters said a recession has already begun or will develop in 2008, compared with 45 per cent in the February survey.

The panel sees GDP growing at an annualised rate averaging 2.1 per cent in the second half of 2008, down substantially from the prior survey estimate of 2.8 per cent.

The outlook for 2009 was also marked down slightly, with the group seeing growth of 2.7 per cent over the course of the year, compared with 2.9 per cent in the last report.

The outlook for housing starts was little changed, with starts expected to total 990,000 units in 2008 and 1.12 million in 2009. Home prices are predicted to fall 4.8 per cent in 2008 and retreat further by 0.3 per cent in 2009.

NABE economists called for a rise in the dollar, projecting the euro to weaken to US$1.50 at the end of 2008 and US$1.40 at the end of 2009, from a recent April peak of US$1.60.

The economists see the unemployment rate averaging 5.3 per cent in 2008 and 5.6 per cent in 2009.

Inflation appears to be rising, according to the survey. The panel’s estimate for consumer prices calls for a 3.1 per cent increase during 2008 compared with the 2.5 per cent projected in February. But the economists see an easing of inflation to 2.3 per cent over the course of 2009.

For oil, NABE respondents expected an average price of US$98 a barrel in December 2008 and US$92 in December 2009 - below current market quotes, but much higher than the figures of US$84 and US$80 in the last survey.

The consensus of the economists surveyed is that the Federal Reserve will hold its federal funds interest rate target at 2.00 perUS$cent this year before raising it to 3.00 perUS$cent. — AFP