Economists see deeper pain, followed by gain

Group forecasts deeper recession, with turnaround in late '09, solid recovery in 2010.

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By Chris Isidore, senior writer

NEW YORK ( -- A survey of leading economists finds them now forecasting a far deeper and more painful recession ahead in the first half of the year, but a modest pickup in the second half of 2009, followed by a solid recovery in 2010.

"The steady drumbeat of weak economic and financial market data have made business economists decidedly more pessimistic on the economic outlook for the next several quarters," said Chris Varvares, the president of the National Association of Business Economics, which conducted the survey of 47 top forecasters in late January and early February.

"While a few reports offer some glimmer of hope, a meaningful recovery is not expected to take hold until next year," added Varvares, who is also president of the research firm Macroeconomic Advisors.

The forecasts hold little good news for the first half of this year. The economy is expected to decline at a 5% rate in the first quarter, even sharper than the 3.8% drop recorded in the fourth quarter of last year. And the group is forecasting another 1.7% drop in economic activity in the second quarter.

While the economists surveyed are forecasting a 1.6% gain in economic activity the second half of this year, that won't be enough to overcome the first half weakness, which should result in a 0.9% full-year drop in U.S. economic activity when comparing the fourth quarter of this year to a year earlier. That would be the biggest drop on that basis since 1982, and far worse than the year-over-year decline of 0.2% recorded in the fourth quarter of 2008.

As recently as NABE's November survey, the consensus of economists was that there would be 0.7% economic growth during the course of 2009. Last May's survey found the group forecasting a healthy gain of 2.7% during the year.

But the outlook for this year has clearly gotten much worse since the earlier surveys in just about every measure. The economists are forecasting unemployment rising to 9% for the fourth quarter of 2009, up from their previous 7.5% estimate.

They expect job losses for the year coming in roughly the same as the nearly 3 million jobs lost in 2008, which is nearly four times the job losses they were forecasting three months ago.

They also estimate corporate profits will slip 9% this year, while housing starts and auto sales continue to fall to levels not seen in decades. All those forecasts are significantly worse than estimates in the November survey.

The economists are forecasting a healthy recovery in stocks from current levels, estimating the Standard & Poor's 500 will end the year a 975, which would be 26% above current levels and a gain of 8% from where it started the year. But in November the economists had forecast the S&P would end 2009 at 1,200.

Still, the optimism that the economists had back in November has been pushed back, rather than abandoned. They forecast that the economy will see healthy 3.1% growth during the course of 2010, as they expect unemployment to start to ease as employers add 1.3 million jobs during the year, and auto sales and housing starts at least make it back to 2008 levels. Even the five most pessimistic economists surveyed are forecasting economic growth during every quarter of 2010, although those pessimists expect job losses and the unemployment rate to continue throughout all of next year.

The United States is seen as the most likely major economy to emerge from the global recession first, according to the survey. The survey found 34% expect the U.S. back on its feet first, followed by 28% who believe China would be the first to recover and 13% who picked Canada. Less than 4% picked European economies as the most likely to lead the recovery. To top of page

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