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Severe Recession to Extend Through Mid-2009, Followed by Slow Recovery
added: 2009-01-06

Economists surveyed by BNA expect the recession to be one of the worst in post-war history, lasting until at least mid-2009. The downturn will be marked by heavy job losses and cuts in consumer spending and business investment. The gradual resumption of growth starting in the third quarter is likely to hinge on the success of the federal government's massive economic stimulus and financial intervention efforts.

The 25 economists who participated in the BNA study are from financial institutions, consulting firms, and academia. They were interviewed between Dec. 1 and Dec. 8, 2008.

Highlights of the report include:

U.S. Economy

- Year-old recession will continue for another six months, making it one of the longest and most severe in post-war history.

- Key underpinnings of the recovery in the second half of 2009 will be federal economic stimulus and resolution of the financial crisis.

- Major risks to the economy include uncertainty about the extent of bad investments in mortgage and other securities.

Labor Markets

- Payroll losses will average 218,200 jobs per month in the first six months of the year, slowing to 41,700 jobs per month in the second half of 2009.

- Unemployment rate will rise to 8.2 percent in the second half of the year.

- Turnaround in the labor market will be later than that of the overall economy, as employers wait for evidence of growth.

Monetary Policy

- Fed will maintain historic low target for key interest rate before raising it toward the end of 2009.

- Inflation will be relatively low over the year, and core inflation will slow.

- Central bank is widely expected to pursue financial lending and monetary stimulus initiatives.

World Economy

- Financial crisis is considered the most serious since the 1930s, while the global economic downturn compares to that of 1982.

- Averting a worse downturn will depend critically on stimulative policies, with more fiscal stimulus needed in industrial and developing countries.

- Emerging markets will continue to grow but at a much slower pace, contradicting the idea that they are independent from the industrial countries.

Source: PR Newswire

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