An economist at the Atlanta GA-based Robinson College of Business believes the stage is being set for a strong economic recovery in the United States — though that recovery won't gain steam until next year at the earliest.
Dr Rajeev Dhawan, director of the college's Economic Forecasting Center, said that the 2003 real Gross Domestic Product (GDP) growth in the United States would only reach 2.2% but should accelerate to 3.3% in 2004. The recovery should become evident in 2005 when real GDP increases by 4%, he said.
Given that the upcoming few quarters are not of spectacular growth, the unemployment rate will stay in the 6.2%-6.4% range for the next 12 months and then start declining in late 2004, Dhawan predicted. The annual average unemployment rate will be 6.1% for 2003 and will remain there in 2004, though it should drop to 5.8% in 2005.
Dhawan expects unemployment to drop and GDP to grow mainly though increased business investment — largely as a result of the $1.7 trillion in tax cuts that have occurred during President Bush's tenure.
On an annual basis, investment declined by 5.7% in 2002 and should show only a small increase of 1.3% in 2003. However, the fiscal and monetary stimulus of tax cuts should finally brings this number into “strong positive territory” by 2004, when it is expected to grow by 7.9%. By 2005, Dhawan expects investment to grow by a healthy 10.4%.
“With inflation very low right now, depreciation rates for new technologies very high, and the Federal Reserve keeping short-term rates low, an investment growth-led recovery is indeed possible,” he said. However, he cautioned that negative reaction to increasing federal deficits — expected to top $480 billion next year — and a fast jump in long-term interest rates could “nip in the bud” a recovery.