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Portfolio > Economy & Markets

Forecasters: The Economy Will Hold ... Barely

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Two economic experts are predicting the U.S. economy will cool this year without quite freezing.

“The big question today is whether the U.S. economy will face recession,” Edward Campbell, an investment strategist in the investments arm of Prudential Financial, Newark, N.J., said recently at a forum organized by Prudential. “The answer is that it will avoid it, but just barely.”

Another forecaster, Robert Doll, global chief investment officer for equities at Black Rock Inc., New York, made a similar prediction at a forum sponsored by his own firm.

The U.S. will narrowly escape a recession in 2008, but “even if we skirt one, it’s going to feel a lot of days as if we are in one,” Doll said.

Campbell allowed for some possibility that a recession could still occur.

The risk of entering a recession might be as high as 40%, Campbell said.

But “the U.S. economy is a resilient animal,” and sluggish growth of 1% to 2% seems more likely, Campbell said.

Exports will contribute significantly to gross domestic product growth this year, and a soft economy could help the stock market do well, by forcing the Federal Reserve Board to lower interest rates, Campbell predicted.

Doll estimated U.S. GDP will grow 1.5% to 2% this year, and that the world economy will grow about 2.9%.

Factors that should cushion the economy against housing market weakness include rising liquidity, lower rates, trade growth, job growth and wage gains, Doll said.

Meanwhile, although housing prices are falling, household net worth is not falling and is at an all time high, Doll said.

Doll also predicted that:

- The dollar will rise against the euro but fall against developing country currencies.

- Large cap and growth stocks will outperform small cap and value stocks.

- Despite rising above $100 per barrel, oil prices will end the year lower than where they started.

- Democrats will capture the White House and increase their lead in the Senate, House and governors’ mansions for the first time since 1992.

Both Doll and Campbell predicted that the Fed will continue to cut interest rates.

Doll expects the Fed’s target rate for overnight bank lending to fall to 3.5%, from the current level of 4.25%.

Campbell said the overnight lending rate will fall to 3%.


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