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Recession seen worsening, deflation a risk
Thu Dec 11, 2008

The "nasty" U.S. recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released on Thursday said.

"Where only last quarter we were worried about inflation, we are now worried about its very rare opposite: deflation," the report said. Falling prices would cut demand and discourage employers from hiring.

"The news from the economy is bad," the report said. "The recession that we had previously hoped to avoid is now with us in full gale force."

The UCLA Anderson Forecast unit expects real GDP to shrink by 4.1 percent this quarter and by another 3.4 percent and 0.8 percent in the first and second quarters of next year, respectively, as consumer and business spending weaken and as the foreign trade that had propped up growth much of this year sags.

"Because Europe and Japan are already in recession and China and India are suffering from a significant slowdown in growth, the export boom of the past few years will wane," the report said. "Make no mistake the global economy is in its first synchronized recession since the early 1990s."

By late 2009 the U.S. unemployment rate will hit 8.5 percent, compared with 6.7 percent in November, as employers shed an additional two million jobs over the next year.

The historical long-term trend of 3 percent growth will not resume until 2010, the report said.