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Economy next year will be better than 'really, really awful' 2009

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The Tampa Tribune

Published: November 13, 2009

SPECIAL TO THE WEST PASCO PRESS

In 2010, the nation's economy will be better than it was this year. That, however, isn't a cause for raucous celebrations, according to an Indiana University forecast.

Since 2009 has been a "really, really awful" economic year, 2010 can be better without being all that good, according to Bill Witte, an IU emeritus associate professor of economics.

"Better is not necessarily good," said Witte, a member of the IU Kelley School of Business' annual Business Outlook Panel. "2010 is going to be acceptable, except for the fact that we're starting from extremely low levels. Things will be getting better, but they still won't be really good."

Although the worst of the recession appears to be over, it will take three to five years "to restore the luster to the economy and once again reach full employment," the IU panel declared in its annual forecast, released last week.

While output growth next year will be above 3 percent, "hangover from the financial crisis will hold the strength of the recovery below what would normally be expected following such a deep downturn," the forecast report says.

Witte, co-director of the IU Center for Econometric Model Research, is pointing to two factors as the primary sources of the economic headwind in 2010. Cautious consumers who took dramatic hits to the values of their homes and other investments and small businesses still contending with tight credit are the main negatives, he says.

In addition, credit is still a problem for businesses, especially small firms, Witte says. "That means that small businesses are going to find it more difficult than they normally would, with a fully functional financial market, to finance investment and expansion of their businesses."

Here are other highlights from today's forecast:

•The housing market will show some growth but, like the overall economy, it will be muted.

•Interest rates will rise slightly, but remain low by historical standards, with some upward pressure possible late in the year. Mortgage rates will average 5 to 6 percent.

•Energy prices will be higher than 2009, but will remain far below the peak reached in 2008. Barring a severe supply disruption, crude oil prices will fluctuate between $60 and $90 per barrel.

•Business profits in most sectors will hold up because of major cost cutting that has occurred.

•The global economy should expand by about 3 percent in 2010, with stronger growth in emerging economies, especially Asia. As in the U.S., global growth will fall short of the rates earlier in this decade.

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