Forecasters: Economy worse in ‘09, better in ‘10

WASHINGTON – Brace yourself: The recession is projected to worsen this year. The country stands to lose a sizable chunk of economic activity in 2009 as consumers at home and abroad retrench in the face of persistent economic troubles. And the U.S. unemployment rate — now at 7.6 percent, the highest in more than 16 years — is expected hit a peak of 9 percent this year.

That gloomy outlook came from leading forecasters in the latest survey by the National Association for Business Economics to be released Monday. The new estimates are roughly in line with other recent projections, including those released last week by the Federal Reserve.

“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 NABE president Chris Varvares, head of Macroeconomic Advisers.

All told, Varvares and his fellow forecasters now expect the economy to shrink by 1.9 percent this year, a much deeper contraction than the 0.2 percent dip projected in the fall.

If the new forecast is correct, it would mark the first time since 1991 the economy actually contracted over a full year and would be the worst showing since 1982, when the country had suffered through a severe recession.

Vanishing jobs, shrinking nest eggs, rising foreclosures and tanking home values have forced American consumers to cut back, which in turn has caused businesses to lay off workers and slash costs in other ways, feeding a vicious downward cycle for the economy.

The current recession, which started in December 2007, is posing a major challenge to Washington policymakers, including President Barack Obama and Fed Chairman Ben Bernanke. That’s because its root causes — a housing collapse, credit crunch and financial turmoil — are the worst since the 1930s and don’t lend themselves to easy or quick fixes.

“As the news on the economy has darkened, so too, have the forecasts,” said Ken Mayland, president of ClearView Economics. “We are suffering a period of maximum stress on the economy.”

The economy is expected to remain feeble this year — even with new efforts by the administration and Congress to provide relief.

Just over the past few weeks, a $787 billion recovery package of increased government spending and tax cuts was signed into law, the president unveiled a $75 billion plan to stem home foreclosures and Treasury Secretary Timothy Geithner said as much as $2 trillion could be plowed into the financial system to jump-start lending.

In terms of lost economic activity in 2009, the biggest hit will come in the first six months, forecasters said.

NABE forecasters now expect the economy to slide backward at a staggering pace of 5 percent in the current January-March quarter. That’s a sharp downgrade from the 1.3 percent annualized drop projected in the old survey.

“Further pronounced weakness in housing and deteriorating labor markets underscore the risks for 2009,” Varvares said.

Many economists believe that the current quarter will be the worst of the recession in terms of the bite to gross domestic product, which is the value of all goods and services produced within the U.S. and is the broadest barometer of the country’s economic health.

The second quarter of this year also will be a lot weaker, with the forecasters now calling for the economy to contract at a 1.7 percent pace, compared with the prior projection of 0.5 percent growth.

In the second half of this year, the economy should expand, but still less than what economists thought just a few months ago. NABE forecasters believe home sales and housing construction should hit bottom by the middle of the year, which would help stabilize the economy. Home prices, however, are expected to keep falling, according to other experts.

NABE forecasters predicted that when all is said and done the recession will have caused GDP to decline 2.8 percent. That would be “slightly less than the 3.1 percent during the early ’70s,” according to the survey of 47 forecasters taken between Jan. 29 and Feb. 12.

Even in the best-case scenario, with the recession ending sometime in the second half of this year, employment conditions will be tough.

Some of the forecasters said the nation’s unemployment rate could rise as high as 9 percent for all of 2009 and hit 10 percent next year. In 2008, the jobless rate averaged 5.8 percent, the highest since 2003. The survey’s median forecast — or middle point — called for the unemployment rate to rise to 8.4 percent this year and 8.8 percent next year.

Companies touching every part of the economy have announced thousands of layoffs already this year and more cuts came last week. Goodyear Tire & Rubber Co., said it will cut nearly 5,000 jobs, or almost 7 percent of its work force, this year, following the elimination of about 4,000 jobs in the second half of last year. General Motors Corp. and Chrysler, which are asking the government for billions more in aid to remain viable, announced plans to cut 50,000 more jobs, 47,000 of which would be at GM.

The Fed said the unemployment rate could stay elevated into 2011. Some analysts think the jobless rate won’t drift down to a more normal range of around 5 percent until 2013 — at the earliest.

Companies won’t ramp up hiring until they feel confident that any recovery has staying power. That’s why employment is usually the last piece of the economy to reap the benefits of a recovery.

“A meaningful recovery is not expected to take hold until next year,” said Varvares.

NABE predicts GDP will rebound in 2010, averaging 2.4 percent over the course of the year. The Fed, too, is forecasting that the economy will grow again in 2010_ and will pick up momentum in 2011.

Even so, the Fed is still guarded about any turnaround.

Given all the negative forces weighing on consumers and businesses, the economic recovery “would be unusually gradual and prolonged,” the Fed said.

source : news.yahoo.com

Asian markets fall as Japan’s recession deepens

HONG KONG: Most Asian stock markets fell Monday, as new figures showed Japan’s economy contracted at its quickest pace in 35 years and Group of Seven finance ministers warned the global slump will drag on through most of the year.

The fourth quarter GDP numbers out of Japan, worse than many forecasts, were a sobering reminder of the toll on Asia’s export-driven economies as world demand collapses amid the worst slump in decades.

Japan’s Nikkei 225 stock average edged down 29.23 points, or 0.4percent, to 7,750.17, and Hong Kong’s Hang Seng Index dropped 118.07points, or 0.9 percent, to 13,436.60. South Korea’s Kospi lost 1.4 percent to 1,176.23. India’s benchmark dropped more than 3 percent, Australia’s stock measure eased 1.2 percent and Singapore’s index was off 0.6 percent.

Meanwhile, Shanghai’s main index jumped 3 percent as mainland stocks extended their rally in the new year. In Japan, several exporters were hurt by the data showing the economy sank deeper into recession. Shares in Toyota Motor Corp. lost 0.7 percent, while electronics heavyweight Canon Inc. slid 1.2 percent. Sony Corp. lost 1.3 percent. Also weighing on markets were declines on Wall Street last week.

India’s NTPC, NPC plan 2,000 MW nuclear power unit

MUMBAI: Indian state-run firms NTPC Ltd and Nuclear Power Corp of India Ltd have agreed to form a joint venture to build 2,000 megawatts nuclear power plant in India.

NTPC, India’s largest power utility, will hold 49 percent stake in the venture, it said in a statement over the weekend. Nuclear Power Corp will hold the majority 51 percent stake. It did not disclose financial details, but Indian newspapers estimated investment in the join venture would total 150 billion rupees ($3 billion) over eight years, with the two firms bringing in 50 billion rupees as equity.

India signed a nuclear pact with the United States last year, giving New Delhi access to civilian nuclear fuel and technology for the first time in three decades, and opening up a potential multi-billion dollar market to global trade.

The country hopes to generate 20,000 MW through nuclear power by 2020, boosting supply for its power-starved economy, which currently faces shortages of up to 16 percent at peak hours. Existing nuclear power capacity stands at about 4,000MW.

Gregg withdraws as commerce secretary nominee

WASHINGTON – Saying “I made a mistake,” Republican Sen. Judd Gregg of New Hampshire abruptly withdrew as commerce secretary nominee on Thursday and left the fledgling White House suddenly coping with Barack Obama’s third Cabinet withdrawal. Gregg cited “irresolvable conflicts” with Obama’s policies, specifically mentioning the $790 billion economic stimulus bill and 2010 census in a statement released without warning by his Senate office.

Later, at a news conference in the Capitol, he sounded more contrite.

“The president asked me to do it,” he said of the job offer. “I said, yes. That was my mistake.”

Obama offered a somewhat different account from Gregg.

“It comes as something of a surprise, because the truth, you know, Mr. Gregg approached us with interest and seemed enthusiastic,” Obama said in an interview with the Springfield (Ill.) Journal-Register.

Later, he told reporters traveling with him on Air Force One that he was glad Gregg “searched his heart” and changed course now before the Senate confirmed him to the Cabinet post. He also said Gregg’s withdrawal won’t deter him from working with Republicans and trying to change the partisan ways of Washington.

“Clearly he was just having second thoughts about leaving the Senate, a place where he’s thrived,” Obama added.

The unexpected withdrawal came just three weeks into Obama’s presidency and on the heels of several other Cabinet troubles. The new president is in the midst of expending political capital in Washington — and around the country — for his economic package and is seeking to move forward with an ambitious agenda in the midst of an economic recession while the country continues to face threats abroad.

Now Obama also finds himself needing to fill two vacancies — at Commerce and at the Health and Human Services Department. Former Senate Democratic leader Tom Daschle withdrew his nomination for that post amid a tax controversy. Treasury Secretary Tim Geithner was confirmed despite revelations that he had not paid some of his taxes on time.

New Mexico Gov. Bill Richardson was Obama’s first choice as commerce secretary. He withdrew in early January following disclosure that a grand jury is investigating allegations of wrongdoing in the awarding of contracts in his state. Richardson has not been implicated personally.

Gregg was one of three Republicans Obama had put in his Cabinet to emphasize his campaign pledge that he would be an agent of bipartisan change.

White House Chief of Staff Rahm Emanuel said Gregg told the White House early this week that he was having second thoughts and met with Obama about them during an Oval Office meeting on Wednesday. Emanuel said there were no hard feelings and “it’s better we figured this out now than later.”

“He went into this eyes open and he realized over time it wasn’t going to be a good fit,” Emanuel added.

Gregg said he’d always been a strong fiscal conservative and added: “It really wasn’t a good pick.”

In an interview with The Associated Press, Gregg said, “For 30 years, I’ve been my own person in charge of my own views, and I guess I hadn’t really focused on the job of working for somebody else and carrying their views, and so this is basically where it came out.”

Gregg, 61, said he changed his mind after realizing he wasn’t ready to “trim my sails” to be a part of Obama’s team.

“I just sensed that I was not going to be good at being anything other than myself,” he said.

The New Hampshire senator also said he would probably not run for a new term in 2010.

Senate Majority Leader Harry Reid, D-Nev., called Gregg a friend and said, “I respect his decision.” But Sen. Jay Rockefeller, D-W.Va., chairman of the Senate Commerce Committee, said he wished Gregg “had thought through the implications of his nomination more thoroughly before accepting this post.”

In his statement, Gregg said his withdrawal had nothing to do with the vetting into his past that Cabinet officials routinely undergo. He told the AP he foresaw conflicts over health care, global warming and taxes.

He also cited both the stimulus and the census as areas of disagreement with the administration.

When the Senate voted on the president’s massive stimulus plan earlier this week, Gregg did not vote. The bill passed with all Democratic votes and just three Republican votes. Asked by reporters whether the White House could have used his vote on the plan, Gregg said “I’m sure that’s true” and he said the administration had asked him to vote for it.

Conservatives in both houses have been relentless critics of the centerpiece of Obama’s economic recovery plan, arguing it is filled with wasteful spending and won’t create enough jobs.

The Commerce Department has jurisdiction over the Census Bureau, and the administration recently took steps to assert greater control. The outcome of the census has deep political implications, since congressional districts are drawn based on population.

Gregg’s announcement also undid a carefully constructed chain of events.

The New Hampshire senator had agreed to join the Cabinet only if his departure from the Senate did not allow Democrats to take his seat.

New Hampshire’s Democratic governor, John Lynch, in turn, pledged to appointed Bonnie Newman, a Republican and a former interim president of the University of New Hampshire.

She, in turn, had agreed not to run for a full term in 2010, creating an open seat for Democrats to try to claim.

In a statement, Senate Republican leader Mitch McConnell of Kentucky said Gregg “made a principled decision to return and we’re glad to have him.”

Lynch, who spoke to Gregg several hours before the announcement, said he respected Gregg’s decision to withdraw and remain in the Senate. He thanked Newman for her willingness to serve.

A day after Gregg’s nomination had been announced, the AP reported that a former staffer, Kevin Koonce, was under criminal investigation for allegedly taking baseball and hockey tickets from a lobbyist in exchange for legislative favors while working for Gregg.

The senator said at the time that he had been told he was neither a subject nor target of the investigation, and would cooperate fully.

Asian markets crude prices steady

SINGAPORE: Oil prices remained steady near $40 a barrel in early Asian trade Tuesday ahead of an US economic stimulus package expected to be approved this week.

Light sweet crude for March delivery slid 1 cent to $39.55 a barrel at 10.00 a.m Singapore time. On Monday the contract settled down 61 cents at $39.56 a barrel in New York. London Brent crude rose 2 cents to $46, maintaining a rare premium against US prices.

Investors and governments worldwide are keeping an anxious eye on US plans to stimulate its economy and rescue its banks on Monday, hoping the world's largest economy can lead the way out of a global crisis.

Asia stocks sink as investors eye US stimulus plan

HONG KONG: Asian stock markets were mostly lower in erratic trade Tuesday, as investors’ awaited details of massive U.S. spending plans to revive the world's largest economy and bolster its troubled financial industry.

Markets fluctuated throughout the day after rising sharply last week on hopes the U.S. stimulus measures will speed recovery in its recession-hit economy.

Japan's Nikkei 225 stock average was down 23.09 points, or 0.3 percent, at 7,945.94, while South Korea's Kospi shed 3.82 points, or 0.3 percent, at 1,198.87. Benchmarks in Australia, New Zealand the Philippines and Thailand also fell.

In Hong Kong, the Hang Seng was up just 0.4 percent at 13,824.45after swinging in and out of negative territory throughout the session. Markets in India and Taiwan also gained. In mainland China, Shanghai's key index _ which had surged about12 percent over the last six trading days _ rebounded from the red to close 1.8 percent higher as figures showed the country's inflation eased to just 1 percent in January.

For the most part, Asian trade matched a listless session in the U.S., where markets wavered ahead of announcements from Washington. The Dow Jones industrial average fell 9.72, or 0.12 percent, to 8,270.87. The blue chips fluctuated between gains and losses 49 times during the session. The Standard & Poor's 500 index rose 1.29,or 0.15 percent, to 869.89. Wall Street futures pointed to a lower open in the U.S. Dow Jones industrial futures were down 63 points, or 0.8 percent, at 8,155.Standard & Poor's 500 futures were down 7.9, or 0.9 percent, at 857.2.