Second quarter 1989.

• Author: Zarnowitz, Victor
• Position: Financial quarter - Economic Outlook Survey

Second Quarter 1989

According to the June survey of 17 professional forecasters taken by the NBER and the American Statistical Association, real GNP is expected to grow 2.9 percent this year and 1.8 percent in 1990. Inflation as measured by the consumer price index (CPI) is forecast to fall from 5.5 percent (annual rate) in 1989:2 to 4.9 percent in 1990:2.

Short-term interest rates are predicted to average 7.5 percent in 1990, down from about 8.5 percent now, while the forecasters believe that long-term rates will change little. The growth and inflation forecasts represent small upward revisions, and the interest rate forecasts represent small downward revisions, compared with the levels specified by the group three months ago.

High Degree of Consensus That a Slowdown Is Developing

Of the five median forecasts of the annual growth rates in the economy's output for 1989:2-1990:2, the highest is 2.2 percent (1990:1), while the others fall in the range of 1.1-1.6 percent. Two of the 17 respondents predict declines in real GNP for two successive quarters between 1989:4 and 1990:2; two others predict single-quarter declines. Among the 85 forecasts of quarter-to-quarter real GNP change, six are negative and 19 are positive but less than 1 percent.

The annual forecasts still indicate a substantial slowdown rather than a recession. The range of the individual predictions for 1988-9 is 2.5-4.1 percent; the mean is 3.0 percent; the standard deviation is 0.5 percent. The corresponding statistics for 1989-90 are 0.5-4.0 percent, 1.8 percent, and 1.0 percent, respectively. All but three of the respondents anticipate reductions in growth next year, but none sees an actual decline on an annual basis.

Forecasters are asked regularly what probabilities they attach to an array of possible relative changes in national output. The distribution of the resulting means confirms the prevalent expectation that a slowdown is underway: Percentage Change

in Real GNP 1988-9 1989-90 4.0 percent or more 8 4 2.0-3.9 percent 70 39 0-1.9 percent 18 44 Negative 4 13 No Serious Deterioration in Outlook for Recession and Unemployment

There is no significant change from the previous survey in the estimated probabilities that national output will decline. The means based on the individual probability distributions double from 14 percent for 1989:2 to 28 percent for 1990:2. Most forecasters think the chances of a recession are not very high, but a few believe otherwise.

The...