US recession seen to end soon with modest recovery

The survey of 45 professional forecasters released by the National Association of Business Economists (NABE) on Wednesday, found almost three-quarters expected the economic downturn to end by the third quarter of this year. The remaining saw the turning point delayed until either the last quarter of this year or the first three months of 2010. None of the respondents believed the recession, now in its 17th month, would extend beyond the first quarter of 2010.
“While the overall tone remains soft, there are emerging signs that the economy is stabilising,” said NABE President Chris Varvares.
“Business economists look for the recession to end soon, but that the economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”

Positive signs

Recent economic data have suggested that the intensity of the housing-led downturn was starting to ease as some of the government’s record $787 billion package of spending and tax cuts started to filter through the economy.
In the February survey, they had forecast GDP falling 1.7 per cent in the second quarter. The government last month estimated that the GDP shrank at a 6.1 per cent annualised rate in the first quarter.
NABE’s revised its forecast GDP rising 1.2 per cent in the second half. The economy was seen returning to near trend growth of 2.7 per cent in the fourth quarter of 2010, down from prior estimates of 3.1 per cent.
Although the pace of job losses is showing signs of losing momentum, the unemployment rate rose to 8.9 per cent in April. The NABE survey forecast the jobless rate surging to 9.8 per cent by the end of 2009 before easing to 9.3 per cent by the end of 2010.
Economic slack and gains in labour productivity would keep inflation pressures fairly muted this year, the survey found.
That combined with high unemployment would see the Federal Reserve leaving its overnight lending rate steady at a record low 0-0.25 per cent range until the second quarter of 2010, according to the survey.
However, the inflation picture changes in 2010, with the Consumer Price Index predicted to rise by 1.8 per cent on a fourth-quarter-to-fourth-quarter basis from an estimated 0.4 per cent increase in 2009.
However, a quarter of the respondents expected the benchmark lending rate to be 50 basis points or lower, while another 25 per cent forecast it exceeding 1.5 per cent by the end of 2010.