Date registered: Jan 2007
Vehicle: My Two Left Feet
Location: S.D. Cali
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WASHINGTON (MarketWatch) -- The U.S. economy will recover from the current recession in the second quarter of next year, assuming the credit squeeze in global financial markets improves gradually, according to a survey of 48 economists released Monday.
The survey by the National Association for Business Economics shows respondents expect virtually no growth in the current quarter, followed by a 1% increase in the first quarter of the year. The economy could return to a healthier rate of growth, pegged at around 2.7%, by the second quarter.
The unemployment rate would rise to 6.4%, the survey says.
Two out of three economists surveyed say the economy is in recession.
Their forecast is highly dependent on what happens to credit markets, however.
"If financial conditions fail to improve quickly, near-term economic prospects could deteriorate markedly," said Chris Varvares, president-elect of the economists' group and the president of Macroeconomic Advisers, a top forecasting firm.
"Still, the NABE panel expects that lower oil prices, a bottoming out in home prices, and a better functioning of financial markets should enable the economy to resume trend-like growth by the second half of 2009," Varvares added.
But if credit markets don't improve, gross domestic product is expected to fall by 1.1% this quarter and by 0.5% in the first three months of 2009, the group said in a supplemental survey conducted last week. The unemployment rate would rise to 7%.
The bailout plan passed by Congress last week should help considerably, the economists said.
Without the plan, GDP would be about 0.75 of a percentage point lower next year, the unemployment rate would be 0.5 of a percentage point higher, and stock prices would be 10% lower, according to the NABE survey.
The survey, conducted on Sept. 8 through 19, could already be out of date.
Several forecasters have lowered their predictions in the past week -- including Varvares' Macroeconomics Advisers, which now expects growth of just 0.1% in the third quarter and a 2% drop in GDP for the fourth quarter.
Goldman Sachs economists lowered their forecast on Friday, saying that the recession would likely be more severe than it had been expecting. Goldman doesn't see the economy growing at all until the second half of 2009 and believes the unemployment rate could rise to 8% by the end of next year -- up from the 6.1% rate in September.
UBS and J.P. Morgan economists also cut their forecasts in recent days. The economy should shrink in the third, fourth and first quarters, economists from both firms said.
Economists from all four firms expect the Fed to cut its federal funds target rate from 2% to 15% by the end of October and to 1% next year. The 1% fed funds would match the low reached in 2003.
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