Relatively healthy GDP growth of 2.5% to 3% is currentlyexpected for 2003. This is in line with the long-term growth ratefor the US economy but well below the historical 5% in the fourquarters coming out of a recession. Strength in retail sales andhousing throughout the recession, spurred by historically lowinterest rates and availability of capital, has left little pent-updemand to boost the recovery. At the same time, the business sectoris still struggling to recover from the late '90s investment andstock-market bubbles.
Just as important, the shadow of uncertainty is making corporateCEOs cautious. The possibility of war, further terrorism, globaltensions and corporate scandals are the main culprits. As a result,employment growth will likely remain weak through mid-2003,particularly since companies need to post sustainable profitimprovement before investment and hiring can resume.
Record refinancing in the third quarter of 2002, relatively lowunemployment and income growth should work to avoid a double-diprecession, but the recovery will remain muted and the risk ofrecession will be heightened for the next several months.
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