''Rising tensions in the Middle East are coloring business decisions
and hampering U.S. economic growth,'' said Tim O'Neill, NABE
President and Executive Vice President/Chief Economist, BMO Financial
Group. ''The NABE panel's expectation, nonetheless, is that
resolution of the conflict will combine with stimulative monetary
and fiscal policy to create much stronger conditions in the latter
half of this year. Concern about the sharp increase in the deficit
arising from the President's budget plan is tempered by expectations
that tax cuts will boost economic growth and that the broader recovery
will improve fiscal balances.''
- The NABE panel's 2.7 percent forecast for 2003 GDP growth was
little changed from the November 2002 survey. Expansion in the
second half of the year is expected to exceed 3.5 percent, however.
- Perhaps the biggest change in the outlook from the last NABE
survey was a significant widening of estimates for the Federal
budget deficit. The consensus now calls for a shortfall of $278
billion this year, and $273 billion next year. This reflects the
potential impact of the Administration's tax cut proposal and
the costs of a war against Iraq.
- The NABE panel was less sanguine about prospects for corporate
profits. Earnings are now expected to grow by 10.3 percent for
2003, versus the 15.0 percent predicted in the November 2002 survey.
This translates into more modest progress in business investment,
inventory levels, and hiring, all of which would benefit from
better corporate cash flow.
- Consumer spending is not expected to reach the heights it did
in 2002, but it is not expected to taper off too much. Personal
consumption expenditures are projected to grow at a 2.7 percent
pace in 2003, versus 3.1 percent last year. Auto sales are forecast
to nearly match last year's total of 16.7 million units.
- Respondents do not seem to be troubled by the prospect of deflation.
The NABE consensus calls for an increase of 2.3 percent in the
Consumer Price Index for 2003, and none of the 37 NABE panelists
expected the CPI to decline this year.
- Interest rates are expected to remain essentially stable for
the coming six months. Some tightening from the Federal Reserve
in the second half of 2003 is expected, as economic growth moves
above its long-run, non-inflationary potential, which the NABE
panel estimated to be 3.3 percent. The NABE panel's individual
forecasts of long-run inflation centered around 2.5 percent per
year. As a result, the implied growth of our nominal GDP (GDP
unadjusted for inflation) is forecast to average just under six
percent in the foreseeable future.
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