Monday, February 25, 2008

Recession in U.S. More Likely in 2008, Economists' Survey Finds

Recession in U.S. More Likely in 2008, Economists' Survey Finds

By Steve Matthews

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The proportion of economists who forecast a U.S. recession this year more than doubled in three months, to 45 percent, according to a survey by the National Association for Business Economics.

Of those, a majority expect the downturn to be ``relatively muted,'' according to the poll of 49 professional forecasters taken Jan. 25 to Feb. 13. Less than 20 percent predicted a downturn in the previous poll completed Nov. 6.

The spillover from the biggest housing slump in a quarter century, turmoil in financial markets and higher energy prices will cause growth to slow to an annual pace of 0.4 percent this quarter and 1 percent in the second quarter, the survey found.

``U.S. economic growth is expected to slow to a crawl in the first half,'' Ellen Hughes-Cromwick, the group's president and chief economist at Ford Motor Co., said in a statement.

The economy will expand 1.8 percent in the year ending in 2008's fourth quarter, according to the survey. That compares with predictions of 2.6 percent in November.

The survey's median forecast for fourth-quarter growth compares with 2008 forecasts of 1.7 percent in a Bloomberg News survey taken this month.

Lower Rates

The Fed will lower its benchmark overnight lending rate between banks to 2.5 percent through the end of the year, from the current 3 percent, according to the NABE survey median.

Futures markets show traders expect a half-point reduction, to 2.5 percent, by the end of the next meeting on March 18.

Fed officials lowered their projections for economic growth by half a percentage point this year, according to quarterly figures published last week. Policy makers have cut the benchmark interest rate by 2.25 percentage points since September.

Fed Chairman Ben S. Bernanke, appearing before the Senate Banking Committee Feb. 14, indicated that policy makers are prepared to lower interest rates further to revive the economy as banks make it tougher to borrow.

The economists polled by NABE projected growth ``accelerating in the second half in response to fiscal and monetary stimulus,'' Hughes-Cromwick said.

Congress has approved a $168 billion fiscal package to lift growth.

Effect of Stimulus

About 40 percent of the economists in the survey viewed the package as helpful in preventing a recession and an additional 30 percent said it would keep any recession short and mild.

The slowing growth this year isn't expected to reduce inflation. The panel raised its forecast for price gains. The Consumer Price Index will rise 2.5 percent from the fourth quarter of 2007 to the same quarter in 2008, compared with 2.3 percent predicted in November.

The housing slump and credit availability were cited by forecasters as hurting growth this year. More than 60 percent of the economists said the housing recession will have a major negative effect on consumer spending.

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