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Sickly US economy set for H2 rebound

The recession-hit US economy is proving weaker than economists expected just a month ago, but forecasters still think a recovery is in the cards for later this year, a survey.

“Consumer spending and residential investment are expected to turn positive and begin boosting GDP growth in the third quarter of this year,” the newsletter Blue Chip Economic Indicators said, summarizing its survey of private economists.

The consensus of the 51 forecasters surveyed looks for US gross domestic product to tumble at a sharp 5.3% annual rate in the first quarter and to decline at a 2% pace in the second quarter.

In the third quarter, however, economists expect the economy to expand at a 0.5% rate, followed by a 1.8% fourth-quarter gain.

For the year as a whole, the economy is expected to shrink 2.6%, which would be the largest annual contraction since the Great Depression. A month ago the survey pointed to a drop of 1.9%.

“A huge drop in business inventories, further declines in non-residential fixed investment and another sharp drop in residential investment” are expected to drive economic weakness in the first half of 2009, the survey said.

In the first half of the year the economy will also be pressured by “continued, albeit diminishing declines in consumer spending and falling exports,” it added.

By the second half consumers are expected to open their wallets, encouraged by the sharp drop in energy costs, tax cuts contained in a recently passed fiscal stimulus package and some loosening of credit conditions, the survey said.

However, consumer enthusiasm will likely be tempered by reminders of sharp declines in home prices and retirement savings and stubbornly high levels of unemployment.

“The unemployment rate now is expected to average 8.6% this year and 9.1% in 2010, the highest back-to-back years of unemployment since 1982-1983,” the survey said.

The pace of the recovery should quicken next year, the survey found. In the first quarter of 2010, the economy is expected to grow at a 2.3% pace, which is expected to quicken to a 3.1% pace by year end.

The latest poll was conducted prior to a government report on Friday that showed the unemployment rate surged to a 25-year high of 8.1% last month as employers cut 651,000 jobs. (Reuters)