WASHINGTON: The worst US recession since the Great Depression will probably end in the third quarter, but uncertainty exists over the speed and duration of the recovery, according to the most recent survey of private economists.
The Blue Chip Economic Indicators survey of private economists released on Monday showed about 90 per cent of the respondents surveyed believe the economic downturn will be declared to have ended this quarter.
This upbeat assessment followed recent government data showing that gross domestic product (GDP) contracted at a shallow 1 per cent rate in the second quarter after sinking 6.4 per cent in the January to March quarter.
Separately, Federal Reserve policymakers began a two-day meeting yesterday amid rising signs that the recession is receding but they are not expected to ease aggressive efforts to boost growth until recovery is well under way.
The Federal Open Market Committee (FOMC) is widely anticipated to hold unchanged its key federal funds rate at a historically low range of zero to 0.25per cent to spur lending and economic activity.
Economists said the financial markets will be closely watching the FOMC's statement accompanying its interest rate decision today for clues about the momentum of the world's largest economy.
Recent data, including housing and key labour market indicators, have suggested a bottoming out in the recession and that the economy was close to turning the corner. The economy slipped into recession in December2007.
'Debate now centres on the speed, strength and durability of the recovery,' the Blue Chip survey said.
It showed that nearly two-thirds of respondents believed the economy was set for a U-shaped recovery, marked by below-trend growth in GDP before stronger growth takes hold in the second half of next year.
About 17 per cent of the respondents anticipated a V-shaped rebound, where growth pulled back to its trend rate on a sustained basis, while the same percentage fretted that a W-shaped recovery could follow, the survey showed.
'In their view, GDP growth will pop higher for a quarter or two only to falter again before a lasting recovery takes hold,' the survey said.
Growth in the second half was expected to garner support from a reduction in the pace of business inventory liquidation, marginal improvements in consumer spending and residential investment. The survey predicted that non-residential investment, however, would remain a drag on GDP.
Despite the improved economic picture, unemployment was expected to remain a problem, with the jobless rate predicted to peak at just over 10 per cent late this year or early next year, the survey showed. It was seen falling only slowly thereafter.
Government data on Friday showed the unemployment rate nudged down to 9.4 per cent last month from 9.5 per cent in June, but mostly because many people dropped out of the labour force.
'About 70 per cent of the panellists believe the jobless rate will not dip below 7 per cent on a sustained basis until the second half of 2012 or later,' the survey said.
However, job losses could fade late this year or early next year and payrolls start to expand as companies rebuild inventories, which should lengthen the work week, according to the survey.
REUTERS, AGENCE FRANCE-PRESSE
Source: Straits Times, 12 Aug 2009
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