Published May 20, 2008

US recession may end by next quarter: economists

Growth to pick up to 2.1% in 2nd half: NABE poll

(ATLANTA) The US economy will probably exit from a recession by the end of the next quarter as credit markets improve after a year of turmoil, according to a survey of economists.

The worst of the US credit crunch and housing slump is about over, and growth will pick up to 2.1 per cent in the second half, according to the poll of 52 professional forecasters by the National Association for Business Economics (NABE).

More than 60 per cent of the economists surveyed between April 17 and May 1 predicted that businesses and consumers will find it easier to borrow in the final six months of the year.

The share of analysts who said that the US is in or will have a recession this year rose to 56 per cent from 45 per cent in February. They anticipate that the Federal Reserve's steepest interest rate cuts in two decades, tax rebates, record exports and some stabilisation in housing will lead to a recovery this quarter or next.

'We are most of the way through the downturn, or the worst of it,' said Lynn Reaser, a Bank of America economist in Boston who chairs the economic survey committee. 'Recovery forces are in place and conditions should improve over the next year and a half.'

The worst housing recession in a quarter century, turmoil in financial markets and higher energy prices are taking a toll on current growth.

The economists predicted the expansion will slow to an annual pace of 0.4 per cent in the second quarter, following two straight periods of 0.6 per cent gains. Second-half growth forecasts were cut to 2.1 per cent from 2.8 per cent in February. Still, about three-quarters of those predicting a recession said that it will end in the second or third quarter.

The NABE survey points to gradual improvement into 2009, when US gross domestic product (GDP) may increase 2.7 per cent, a forecast trimmed from 2.9 per cent in the February survey.

'Although housing and credit markets will gradually loosen their grip, US economic growth is expected to only slowly return to health,' Ellen Hughes- Cromwick, the group's president and chief economist at Ford Motor Co, said in a statement.

The Fed will keep its benchmark overnight lending rate between banks at 2 per cent this year, and raise the rate to 3 per cent by the end of 2009 as the central bank fights the threat of faster inflation, according to the NABE survey median.

Futures markets show that traders expect the rate to hold at 2 per cent through October. The Fed's next policy meeting is June 24-25. - Bloomberg