As a rule, the forecasts follow a similar pattern since the recession began in 2001: slow near-term growth followed by improvement on a six- to 12-month horizon. Thus, forecasters predict GDP growth of 2.2 to 2.9 percent this year, jumping to 3.6 to 4 percent in 2004.
J. Antonio Villamil, CEO of The Washington Economics Group in Coral Gables, Florida, believes growth will reach about 3.5 percent by the end of 2003. "There's a lot of fiscal stimulus coming down the pike, consumer confidence is up, and the cost of borrowing remains low," he says, adding that consumer and fiscal spending in addition to exports will drive growth in the second half of the year. While Mr. Villamil thinks the economy still suffers from the equity bubble of a few years ago and continues to be plagued by overcapacity in the telecommunications, information technologies, and commodities sectors, he believes a growth rate of 4 percent will be achievable in 2004.
For now, Mr. Villamil concedes that a rate of 3.5 percent constitutes moderate as opposed to robust growth. Ken Goldstein of The Conference Board puts it this way: "The first half of this year has been a washout. And the word for the rest of the year is, 'Wait till next season.'
Yes, the second half of year should be better, but twice a snail's pace is still not fast."
"There is no locomotive to pull the economy forward at a high rate of speed in the year ahead," adds Edward Leamer, the professor who directs the Anderson Forecast Project at UCLA. He maintains that while consumer and business spending will likely grow in the coming months, the increases will be relatively insignificant. And with reduced spending by state governments, the effect will be weak growth, he says.
For strategic planners at small and mid-sized companies, GDP translates into demand for consumer goods or demand by other businesses. During the current slowdown, consumers have continued to spend, but business buyers remain stingy. "We're all holding our breath for business investment to kick in," says Mr. Goldstein. "It doesn't look like that will happen this summer. We're talking September or October, more likely November or December. And if we get unlucky, early 2004."
The latest round of tax cuts includes accelerated depreciation of capital investments. However, Mr. Goldstein notes, since companies aren't investing, they can't depreciate anything. To take advantage of the tax break, companies need "more money for internal investing," he explains. "Profits have to grow. [Businesses] have to see their way to more demand. That is not where we're going to be this summer."