Friday, January 6, 2012
The Economic Cycle Research Institute (ECRI) made a controversial call in September last year: it said a U.S. recession in 2012 was a ‘done deal’. Yesterday, Ethan Harris of BofA/Merrill Lynch was more hedged: he said there was a 40% chance of a U.S. recession but a 50% chance that U.S. growth would be 1.9%. Harris was pretty sure the eurozone was headed for a recession in 2012.
Harris, the co-head of Global Economics Research at BofA/Merrill Lynch, was speaking yesterday to the National Economists Club in Washington, D.C.
Europe: a recession, but how big? Europe is almost certainly going to go into a recession, according to Harris, and this will have an impact on the U.S. economy through banking, trade and confidence channels. For the Eurozone’s 2012 GDP growth, Harris forecast -0.6% with a 50% probability and -2.5% with a probability of 40%.
U.S. Triple Dip: in 2012, look for another soft patch. Harris said the U.S. is facing three shocks in the year ahead.
Putting all the three shocks together, he forecasts US real GDP growth of 1.9% for 2012 and 1.4% for 2013 (vs. Consensus projections of 2.1% and 2.5%, respectively). On a quarterly basis, he projects a downward path for GDP growth of 1.8% in Q1 and Q2, 1.3% in Q3 and 1% in Q4; this is in sharp contrast to Consensus, which projects an upward path.
Harris also said the housing recession in the U.S. continues, there is way too much inventory. It will take 18 months to clear the home inventory at the current sales pace. He thus projects a recovery in the housing market around the third quarter of 2013. He expects U.S. inflation to fade in the summer. He forecasts core PCE 1.5% for 2012 and 1.3% for 2013 vs. consensus projections of 1.8% for both years.
Meanwhile, ECRI seems to be sticking with its recession call for the U.S. – see the latest on their position here.
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