As many of you know I am usually the contrarian (read optimist) poster in many of the economic diaries on Dailykos, so I thought I would put my 2008 predictions in one nice concise diary.
To start off with, I am much less optimistic than I was at the beginning of 2007, but still believe there is only about a 50% chance that we enter an actual recession this year (more on this later). My biggest area to watch is interest rates (and particularly spreads), as if the cost of money goes up in an already weak economy then we are in real trouble. So, without further ado are my predictions for 2008:
- The US economy narrowly avoids a recession. GDP growth for the year comes in at a whopping 1.2% (possibly with the first quarter being negative).
- The developed world doesn't fare as well, as the EU sees its growth trail off to a yearly gain of .5% (possible recession here) due to losses in market share to US exports (cheap dollar gains).
- China continues to claim various growth rates that no one really believes, however, Chinese inflation is quite rampant (think 15%), which brings us to
- US inflation (this is CPI, not core) comes in at 3.5% for the year, as energy simply doesn't post huge gains like in 2007.
- Oil hits $112 a barrel in the first quarter, but then pulls back with the weakening global economy to close the year at $82 a barrel.
- The US unemployment rate closes the year at 5.6%, due to slow growth and continued gains in technology.
- House prices post another 12% decline, but finally start to stabilize by the fourth quarter.
- The S&P 500 closes 2008 at 1628 (an 11% gain).
Now, there is that 50% chance of recession that I see. I believe that if we hit a recession it will be a deep one (not like the last 2). If we get this recession, then my predictions are as follows (not parsing, I stand by the above, but wanted to make some recession predictions too).
- The recession lasts 5 quarters.
- Oil drops into the $50's.
- We take the world with us.
- Home prices fall 20%+.
- The dollar gains on global weakness and gets back to $1.12/Euro.