Recession will bottom out in fourth quarter, says Moody's economist

Economy won’t ‘kick in to high gear’ until 2011 or 2012, Mark Zandi says

May 21, 2009 @ 12:10 pm

By Sue Asci

The battered economy will begin a slow upward climb after the recession bottoms out in the fourth quarter of 2009, predicted Mark Zandi, senior economist at Moody’s Economy.com.

China will lead the way, followed by the United States, he told a gathering of the New England Economic Partnership at the Federal Reserve Bank of Boston today.

The economy will see modest growth in 2010, Mr. Zandi said.

“The economy won’t come roaring back,” he said. “The sectors that generally lead us out of a recession — housing and vehicles — are flat on their back and won’t revive rapidly. The economy will kick into high gear in 2011 and 2012.”

Unemployment is expected to reach a peak of 10% by the spring of 2010. And it will not be until 2013 or 2014 that the country returns to full employment — estimated at 5.5%, Mr. Zandi said.

The country already has lost 5.7 million jobs and will to lose a total of 8 million from peak to trough, he said.

In the last recession, employment fell 2% from peak to peak in its recovery, Mr. Zandi said.

“Prior to the 2001 recession, businesses were panicked about finding skilled workers,” he said. As a result, they may have hired more people than they needed.

“[In the current recession] I think many businesses were worried about their own survival and went through very draconian cost-cutting. Once they feel the coast is clear, I think they’ll be back again hiring,” Mr. Zandi predicted.

The most significant factor in the speed of the recovery is the success or failure of the federal Home Affordable Modification Program, he said.

“I am expecting the end of the [housing] price decline to occur later this year or early in 2010,” Mr. Zandi said. “But that is an assumption. We need to see the loan modification program work. If it doesn’t work, foreclosures will go up and that will put pressure on consumers because of loss of wealth.”

The New England Economic Partnership, based in Walpole, Mass., is a non-profit membership organization dedicated to providing economic analysis and forecasts.

Moody’s Economy.com is based in West Chester, Pa.

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