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Business Economists See Slowdown Next Year, But No Recession Until 1990

September 26, 1988

WASHINGTON (AP) _ The economy will slow in 1989 but probably won’t topple into a recession until 1990 or later, economists for top U.S. corporations predicted today.

The latest survey of the National Association of Business Economists found a panel of 60 economic advisers to the country’s largest businesses substantially more optimistic about 1988 and somewhat more optimistic about next year than it was three months ago.

In May, 57 percent of the economists believed the current expansion, now nearly six years old, would end sometime in 1989. However, in a survey taken in late August and early September, that view was held by a smaller but still substantial 47 percent of the panel.

Forty-two percent of the economists believe the next recession will come in 1990, while 11 percent look for the downturn in 1991 or later.

″For business economists, a group often accused of an inability to reach agreement on anything, the fact that 90 percent of the nation’s leading business economists expect an economic downturn during the next two years is noteworthy,″ said Jay N. Woodworth, an economist with Bankers Trust Co. and incoming president of the association, which is holding its 30th annual meeting in Pittsburgh this week.

The median projection for economic growth as measured by the gross national product was 3.9 percent this year, which would be the best since 1984, and was even more bullish than the Reagan administration’s 3.5 percent forecast.

The economists had predicted 2.9 percent growth in the May survey and raised their projections even though the summer drought is expected to knock a full percentage point off of this year’s growth.

In November, after the stock market crash, more than half the economists were looking for a recession in 1988 and the median growth projection was an anemic 2 percent.

The unexpected robust growth this year, if it holds up, should be good news for Republican presidential candidate George Bush, who is counting on Americans to vote their pocketbooks when they go to the polls on Nov. 8.

Fifty-three percent of a panel of nearly 300 association members are predicting Bush will beat Democrat Michael Dukakis, although 61 percent believe Bush’s economic policies will be better for maintaining stable growth and low inflation. Thirty-seven percent thought Dukakis would win, even though only 22 percent said his policies were better.

But according to the economists, the next administration, Democratic or Republican, is heading for trouble.

The median projection for 1989 GNP growth was 2.3 percent, compared with the administration’s 3.1 percent projection. The economists also said inflation as measured by the Consumer Price Index would kick up, from a projected 4.5 percent this year to 5.1 percent next year. The administration is looking for inflation of 3.9 percent in 1989.

Woodworth said the 1989 growth projection means ″the panel must assume essentially zero growth, the stuff from which recessions are made, for the third and fourth quarters of 1989.″

Asked to rank the next administration’s economic policy priorities, the 300-member panel listed, in order of importance: reducing the budget deficit; completing the free trade agreement with Canada; speeding up productivity growth; encouraging personal savings; and stimulating business investment.

Near the bottom of the economists’ list was curbing hostile corporate takeovers, discouraging corporate debt accumulation, increasing antitrust law enforcement, reforming securities laws to prevent another stock market crash and changing federal law to allow banks to enter the securities industries.

Despite the importance placed on shrinking the budget deficit, the 60 economists forecasting the economy didn’t see much progress ahead. The median deficit projection for next year was $150 billion, about the same as last year’s budget gap and the deficit expected in fiscal year 1988.

In other predictions, the survey found:

-Interest rates, both short- and long-term, should rise a full percentage point by mid-1989 and then start to decline.

-The merchandise trade deficit of $170 billion in 1987 should shrink to $135 billion this year and $120 billion next year.

-Sixty-two percent believe the value of the dollar, which has rebounded somewhat over the past six months, will remain stable this year, and 55 percent believe it will slip next year.

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