Economists Predict Recession’s End

 

More than 90% of economists predict the recession will end this year, although the recovery is likely to be rough, the Associated Press reported.

 

The National Association for Business Economics (NABE) recently surveyed leading forecasters about the state of the economy. The results of the survey, released Wednesday, showed their views are in agreement with the outlook of Federal Reserve Chairman Ben Bernanke and his colleagues.

 

About 74% of the forecasters expect the recession, which started in December 2007 and is the longest since World War II, to end in the third quarter. Another 19% predict the turning point will come in the final three months of 2009, and the remaining 7% believe the recession will end in the first quarter of 2010, the Associated Press reported.

 

“While the overall tone remains soft, there are emerging signs that the economy is stabilizing,” said NABE president Chris Varvares, head of Macroeconomic Advisers. “The economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”

 

One of the causes of the current recession is the financial crisis that hit last fall and proved to be the worst since the 1930s. Economists say recoveries after financial crises tend to be slower.

 

Unemployment rates, therefore, are expected to grow this year even if the economy is rebounding, according to NABE forecasters. Companies are predicted to wait until they feel the economic recovery is firmly underway before they begin hiring again.

 

For all of 2009, the forecasters said the unemployment rate should average 9.1%, a huge leap compared to the 5.8% last year, and more than its current quarter-century peak of 8.9%. If NABE forecasters are correct, it would be the highest since a 9.6% rate in 1983, when the country was struggling to recover from a severe recession.

 

Some forecasters thought the unemployment rate could rise as high as 10.7% in the second quarter of next year. The NABE outlook from 45 economists was conducted April 27 through May 11.

 

As unemployment continues to climb, consumers who have a major impact on economic activity, are expected to stay cautious, which will make recovery slow. In light of the damage the recession has caused to household wealth, especially home values and investment portfolios, consumers probably will watch their pennies for a while.

 

Seventy-one percent of the forecasters expect consumers to remain more frugal for at least the next five years. Americans’ personal savings rate grew to 4.2% in March, the first time in a decade that the savings rate has been above 4% for three straight months.

 

But, although forecasters say the end of the recession is coming this year, they also predict the economy’s overall performance in 2009 will be very poor.

 

They expect the economy to contract by 2.8% this year, which is more severe than the 1.9% drop they forecast in late February. If their predictions prove correct, it would mark the worst annual contraction since 1946, when economic activity fell by 11%.

 

Still, the forecasters believe the worst is already behind us. The economy shrank at a 6.1% annualized pace in the first three months of this year, on top of a 6.3% decline in the final three months of last year, the worst six-month performance in 50 years.

 

For the current April-June quarter, the NABE forecasters believe the economy will shrink at a pace of 1.8%. After that, the economy should start growing again at a 0.7% pace in the third quarter and a 1.8% pace in the fourth quarter.

 

Many forecasters also predict that home sales will hit bottom by the middle of this year, another stabilizing factor for the economy.

 

One positive development is that sales of previously owned homes rose 2.9% in April, the National Association of Realtors reported Wednesday. The median sales price sank to $170,200, a 15.4% drop compared with last year.

 

Next year, the forecasters predict the economy will grow by 2%, which is a bit lower than the 2.4% growth projected in February. Due to a slow recovery, forecasters predict the Fed won’t start boosting interest rates until the second quarter of next year.

 

Because Fed policymakers expect credit and financial problems to subside slowly, “the pace of the recovery would continue to be damped in 2010,” they said last week.

 

 

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