NABE Outlook Panel: Threat of War is Impeding Recovery

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''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.''

Survey Summary

  • 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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Feb. 17, 2003


  • The way the economy stands, we can use any insights right now, but I don't know anything about the NABE. I'll have to visit their website to find out more about them.