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US poised for weak recovery

The US economy will likely begin to recover in the third quarter and housing may hit its long-expected bottom in the following quarter, a UCLA Anderson Forecast report said.

“The free-fall stage of the recession appears to be over and in fact we anticipate that the economy will record positive, albeit minimal, growth as early as the third quarter,” the report said, crediting efforts by the Federal Reserve and US Treasury to buoy the financial system amid the worst crisis since the Great Depression.

But even though housing prices are seen hitting bottom by the end of 2009 or early 2010, housing values may take several years to recover, precluding their use to support consumer spending.

As a result, growth will be modest and unemployment will press higher, peaking next year at 10.4%.

“We are forecasting the weakest economic recovery of the post-war era with real growth on the order of 2% to 3%,” the report said.

“Simply put, we believe that the economy will be weighed down by newly chastened consumers attempting to increase their saving rate and a wrenching structural adjustment in the financial services, automotive and retail industries,” the report added.

Meanwhile, the energy and health-care industries face risks from anticipated regulatory changes in Washington, adding to uncertainty around kitchen and boardroom tables alike.

Washington may also slow recovery by taking in so much in the way of private resources. The federal deficit is estimated to peak at a postwar high of 24.2% of gross domestic product next year, according to the report.

“I'm skeptical of government-led growth but I know that reasonable people can differ on the issue. That underscores the uncertainty,” said David Shulman, the senior economist at the UCLA Anderson Forecast unit, who wrote the report.

“Government policy has been, I think, successful in putting a floor under the economy. But it may be successful in putting a ceiling over it as well.” Shulman said. (Reuters)