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Economists Believe a Recession Is Likely Within Next Four Years

Posted by hkarner - 13. Oktober 2016

Date: 13-10-2016

Source: The Wall Street Journal

In WSJ survey, GDP forecasts are little changed at 2.2% in 2017, 2% in 2018

The U.S. must face one of two scenarios: Either the next president will face a recession in office, or the U.S. will have the longest economic expansion in its history.

Odds are that the recession is more likely.

Economists in The Wall Street Journal’s latest monthly survey of economists put the odds of the next downturn happening within the next four years at nearly 60%.


That is not an assessment that the next U.S. president will cause a downturn. Rather, it is a recognition that throughout its history the American economy has never grown for more than a decade without a recession. Over the course of the next four years, something—whether exhaustion of the economy’s cyclical momentum, a policy mistake from the Federal Reserve or some outside shock—could knock the economy off course.

“We do not think expansions die of ‘old age’ but there’s more probability that a shock will hit the U.S. economy further out in the horizon,”said Lewis Alexander, chief U.S. economist at investment bank Nomura.

The current expansion began in June 2009, and has now continued for 88 months, making it the fourth-longest period of growth in records stretching to 1854.

Economists see a 20% chance of a recession within the next year, and see those odds rising as the window gets longer. Asked to name the specific risks, a plurality cited the possibility of a global economic slowdown, which could be largely beyond the next president’s control.


To be clear, the length of an expansion bears little relation to its strength. The U.S. economy has grown at a 2.1% annual pace since 2009. That is the slowest growth of any expansion after World War II. Many economists were once optimistic that growth would accelerate, but now most forecast the economy will continue to grow at this pace in coming years.


The survey underscores what is likely to be a key challenge for the next president: Presidents are often granted leeway to enact policies in response to recession. For example, President George W. Bush passed tax cuts in 2001 and 2003, to stimulate the economy in response to the recession during his first term in office.

Shortly after taking office amid a recession, President Barack Obama pushed through legislation that was about one-third tax cuts and two-thirds spending.


The economic policies of the next president, however, are extraordinarily uncertain. By an 85% to 15% margin, respondents rate the current election as more uncertain than typical, in part due to the growing gap between voters in the two parties.


“Even after the election there will still remain a tremendous amount of uncertainty,” said Gregory Daco, chief U.S. economist of Oxford Economics.

“Policy-making may actually be more difficult in a few month’s time.”


Hillary Clinton’s economic policies generally resemble those of previous Democratic candidates.

But Mrs. Clinton would likely to face a divided and discordant Congress that has been largely unable or unwilling to move legislation in recent years.


Donald Trump has jettisoned the Republican Party’s traditional approach to economics. In a reflection of the size of this departure from the past, not one member of the Council of Economic Advisers for President Ronald Reagan, or either President Bush, has endorsed his campaign.


Mr. Trump has pledged to reverse immigration, renegotiate trade deals, and apply tariffs. On these issues, he differs from the long-held views of many congressional Republicans, including Speaker of the House Paul Ryan.


And observers are also left more uncertain than usual as the public discussion has rarely revolved around fleshing out policies. “The personal nature of the election has left little room for serious policy discussion,” said Douglas Duncan, chief economist of Fannie Mae.


But over the next four years, few think a recession is absolutely guaranteed. A quarter of economists place the odds below 50%.


It is precisely because the economy has grown slowly that some think the recovery could last a long time. “Slow and steady leaves plenty of fuel to keep going,” said Russell Price, senior economist for Ameriprise Financial.


The survey of 59 academic, business and financial economists was conducted from Oct. 7 to Oct. 11.


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