The U.S. economy will make a more robust recovery than originally expected from the worst recession in over half a century, with dwindling expectations of a double-dip downturn, according to the latest Reuters poll.
The survey findings, based on a sample of around 80 economists across the U.S. and Europe, come a day after Federal Reserve Chairman Ben Bernanke said the U.S. recession "is very likely over," his most optimistic remark yet on recovery.
After shrinking by 1 percent in the second quarter, gross domestic product will grow by 3 percent on an annualized basis in the third quarter of this year, according to the median forecast of a sample of 74 economists.
That is up from a poll last month, when economists called for third quarter growth of 2.4 percent. In July, the consensus was for growth of just 0.8 percent. The rising tide of optimism has coincided with a 50 percent rally in the stock market, along with some evidence the economy is indeed picking up steam, including August retail sales released on Tuesday that well exceeded economists’ expectations.
The poll showed the probability of a double-dip recession was also pared back sharply, with a median forecast of a 20 percent chance, down from 25 percent in last month’s poll.
"We see signs of slow improvement in the economy," said Adolfo Laurenti at Mesirow Financial, based in Chicago. "We expect the rebuilding of depleted inventories to be a key driver for growth in the second half of 2009, followed by a more broad-based, although still subdued in absolute terms, recovery in 2010."
But other economists were a lot more optimistic, based on an improving outlook for consumer spending.
"The outlook for the economy just brightened considerably," said Chris Rupkey, chief financial economist at Bank of Tokyo/Mitsubishi UFJ in New York, after Tuesday’s retail data.
The poll showed that growth expectations for the coming two quarters have come back to roughly where they were one year ago, when investment bank Lehman Brothers collapsed and the financial industry was teetering on the brink of implosion.
Shortly before Lehman’s collapse, economists polled by Reuters were looking for annualized growth of 2.4 percent in the third quarter of 2009 and 2.5 percent in the fourth quarter. The deepest pit for the economy since the 1930s has taken place in between.
"The September baseline forecast is for the recession to be the deepest and the longest since the Great Depression, with a sluggish recovery beginning in the third quarter of 2009," said David Wyss, chief economist at Standard & Poor’s.
For this year as a whole, the economy will contract by 0.5 percent and grow by 2.7 percent next year on a Q4-over-Q4 basis, medians from the poll showed.
That compares with last month’s poll, which forecast the U.S. economy would shrink by 0.8 percent this year. On an annual average basis, the economy is expected to contract by 2.6 percent in 2009 and grow by 2.3 percent in 2010. That compares with 2.7 percent and 2 percent in the August poll, respectively.
However, fears for high unemployment remain — it is expected to peak at 10.1 percent in the first half of next year, compared with last month’s forecast that unemployment would peak at 10.0 percent in the first quarter of 2010.
The Federal Reserve is not expected to raise rates until the third quarter of next year, with the median of forecasts pointing to a federal funds rate of 0.5 percent at that time from the current range of zero to 0.25 percent.
The rate is then forecast to rise to 1 percent in the fourth quarter of 2010, 1.25 percent in the first quarter of 2011 and 1.75 percent in the second quarter of 2011. Inflation expectations were little changed from last month’s poll, with the median of forecasts pegging the consumer price index at negative 1.7 percent in the third quarter of this year, then rising to 0.9 percent in the fourth quarter and 1.8 percent for the first quarter of 2010.
Investors are wary of any hint of rising inflation and inflation expectations, as massive amounts of new U.S. government debt issuance intended to jump-start the economy could eventually feed through to boost price pressure.
