I hope this finds you happy and healthy,
Economic forecast update — or rather downgrade!
We are anxiously awaiting the time when our forecast for the U.S .economy will look too pessimistic, however, that time has not yet arrived. In fact, even historical data on the U.S. economy are being revised downward, with Q4 2008 real GDP contracting at a whopping 6.2% annualized pace, a much faster rate than the 3.8% annualized decline reported in the advance report.
Data released for January and February were also generally grim and we look for a 4.8% annualized decline in Q1, followed by a 2.3% drop in Q2 2009.
Our assessment is that the cocktail of fiscal and monetary policy stimulus measures will contain the financial market storm and ultimately lend support to the economy and an increase in output in the second half of the year.
Still, backed by the severe slump in late 2008 and two more quarterly declines, the U.S. economy is forecast to contract by 2.4% in 2009, a bigger drop than our previous forecast of a 1.7% decline.
The revised number highlighted a retrenchment by both consumers and businesses which, combined with a sharp pull-back in trade flows, saw the economy contract at the fastest pace since 1982. Only an increase in government spending was worth mentioning.