Economists: Unemployment to peak next year

Economists: Unemployment to peak next year
January 12, 2009

THE United States recession will probably be the longest since World War Two and could worsen without heavy government spending, according to a closely-watched survey of economists released yesterday.

The Blue Chip Economic Indicators poll of 52 economists from top financial firms, major companies and academia found that most expected a tepid recovery to begin later this year, with growth returning to more normal levels next year.

A majority of those polled thought the recession would officially end in the third quarter of this year, making this the longest downturn since World WarII.

However, more than half of respondents thought unemployment would peak no earlier than next year, suggesting the pain may linger long after the recession is technically over.

For 2009, the consensus view was that real gross domestic product would fall 1.6 per cent, gloomier than the previous month's forecast for a 1.1per cent decline. A drop of that magnitude would be the worst yearly performance since 1982.

Best and worst
Merrill Lynch held the most pessimistic view, predicting a 2.8per cent decline, while Fedex Corp was the most optimistic, forecasting just a 0.2per cent dip.

'Much likely will depend on the relative success or failure of ongoing and prospective stimulus measures applied by government,' Blue Chip's monthly newsletter said, adding that without a stimulus package, 'prospects would be much darker'.

The consensus was that the stimulus plan would total $778 billion, with estimates ranging from $635billion to $900 billion.

The economists seemed to conclude that government efforts to push down mortgage rates may stall. On average, they expected rates on 30-year conventional mortgages at 5.1 per cent at the end of this year, roughly where they are now.

They forecast the consumer price index to fall 0.4 per cent this year, which would mark the first year-over- year decrease since 1955 and no doubt deepen investors' worries about deflation.

They were split on the outlook for the US dollar.

Nearly 48 per cent thought the trade-weighted value of the dollar would end this year higher than its current level.

Source: http://newpaper.asia1.com.sg/news/story/0,4136,189487,00.html?