WASHINGTON: The worst US recession since the Great Depression has ended but weak household spending amid high unemployment will slow the pace of recovery, according to an influential survey of economists.
The poll of 44 professional forecasters released by the National Association for Business Economics (Nabe) on Monday found 80 per cent believed the economy was now growing, after four straight quarters of decline.
'The great recession is over,' Nabe president-elect Lynn Reaser said. 'The vast majority of business economists believe that the recession has ended, but that the economic recovery is likely to be more moderate than those typically experienced following steep declines.'
Recessions in the US are dated by the National Bureau of Economic Research. The private-sector group, which does not define a recession as two consecutive quarters of decline in real gross domestic product, often takes months to make determinations.
It takes into account factors such as a decline in economic activity lasting more than a few months, real income, employment, industrial production and wholesale-retail sales.
The recession that started in December 2007 is the longest and deepest since the 1930s. It was triggered by the US housing market's collapse and the ensuing global credit crisis.
While the economy is believed to have rebounded in the third quarter, analysts believe ordinary Americans will probably not see much difference as unemployment will stay high well into next year, restraining consumption.
'Consumers will be reluctant to join the party,' said Mr Paul Ashworth, a senior US economist at Capital Economics in Toronto.
The Nabe survey, conducted last month, predicted real GDP growth expanding at an annual pace of 2.9 per cent over the second half of this year. Output for the whole year is expected to contract 2.5 per cent, before rebounding 2.6 per cent next year.
Much of the anticipated recovery was seen as being driven by businesses rebuilding inventories.
Investment in the residential market would also add to growth, with the majority of the survey's respondents convinced that the housing market downturn was nearing an end.
The survey found that high house prices would not pose a threat to the sector's recovery.
It also predicted that unemployment will rise to 10 per cent in the first quarter of next year and edge down to 9.5 per cent by the end of the year. The labour market was not expected to regain most of the jobs destroyed in the recession until 2012 or later.
Unemployment hit a 26-year high of 9.8 per cent last month.
But labour market slack, combined with weak wage growth, meant inflation would not be an obstacle to recovery and the Federal Reserve will not be under pressure to raise interest rates, the survey found.
'With improving credit markets, the US economy can return to solid growth next year without worry about rising inflation,' Dr Reaser said.
The central bank was seen leaving its overnight benchmark lending rate near zero until late spring, followed by measured increases to 1 per cent by the end of the year, the survey showed.
Respondents expect the dollar to continue weakening into next year, but did not see this contributing to a narrowing of the trade deficit as the economic revival stimulates demand for imports.
The dollar has lost about 5.8 per cent against a basket of currencies this year, largely because of worries over the budget deficit and expectations that interest rates will remain low for a while.
REUTERS
Source: Straits Times, 14 Oct 2009
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