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Where Will the Economy Be in Five Years?
Published: October 19, 2010 in Knowledge@W.P. Carey
By Lee McPheters
As the fourth quarter begins, most economy-watchers have lost any hope that 2010
will be a year of strong growth. Instead, analysts now are expecting that it may be
several years before output expands at a consistent pace that is vigorous enough
to make a sizeable dent in unemployment rates.
Economic forecasting is fraught with difficulties even one or two years ahead, so it
is no surprise that there are varied perspectives on where the economy will be in the
longer term, four or five years from now.
The table below compares longer term forecasts from three sources. One source is
Blue Chip Economic Indicators, a leading newsletter that provides monthly consensus
forecasts from 50 professional forecasters, largely representing private sector
viewpoints. Figures in the table below were compiled by Executive Editor Randell
Moore, and appear in the October issue, available here .
The Obama Administration forecasts are from the Office of Management and Budget.
The Congressional Budget Office (CBO) forecasts are intended to support
congressional decision-making.
Real economic growth (GDP)
The Obama Administration forecasts suggest that the economy will expand by
more than 4 percent in 2012. Their GDP growth projection (4.2 percent) is one
full percentage point greater for 2012 than the private Blue Chip consensus (3.2 percent).
The CBO forecast for 2012 (3.4 percent) is similar to the Blue Chip figure, but the
CBO expects a surge in GDP in 2013 to real growth of 4.7 percent. Meanwhile, the
Blue Chip forecasters expect GDP growth to actually slowdown in 2013, to 3.0
percent growth.
By 2015, five years from now, all three sources anticipate that real growth will have
peaked and will be lower than in the previous year. The Obama Administration projects
that growth still will be above trend, at 3.6 percent, but the Blue Chip and CBO forecasts
anticipate that the economy will be back to sluggish expansion, below 3.0 percent.
The average of the three sources puts GDP growing at 3.0 percent, which is equal to the
average annual real growth in GDP from 1987-2007, when the economy last peaked.
Inflation (CPI)
In spite of wide spread concern about the volume of bank reserves and liquidity in
financial markets created by the expansive monetary policy of the Federal Reserve,
none of the sources anticipate a significant spike in the inflation rate over the next
five years.
As recently as 2008, the annual increase in the CPI was 3.8 percent. The greatest
increase in prices anticipated is 2.3 percent by 2015, from the CBO forecast.
Unemployment rate
Unemployment rate forecasts are quite similar for 2012, with all three sources
projecting that unemployment will continue above 8.0 percent. But, consistent with
their expectation of strong GDP growth in 2013 and 2014, the CBO forecasts show
unemployment rates dropping below 7.0 percent in 2013 and declining to 5.0 percent by
2015. The Blue Chip panel of private forecasters is more pessimistic on unemployment.
They envision a slower downward trajectory to a rate of 6.6 percent by 2015.
Five-year summary
The Obama Administration forecast is most bullish on real growth over time, projecting
GDP rises above 4.0 percent by 2012 and is still above 3.5 percent five years from now.
The CBO projects a spike in GDP growth in 2013, followed by a return to sluggish growth
by 2015. Unemployment is seen to come down year by year by all three sources, but only
the CBO has the rate at 5.0 percent by 2015. Inflation remains slightly above 2.0 percent
through 2015 in all the forecasts.
Short-term outlook
The W. P. Carey Round Number Forecast for GDP growth in 2010 and 2011 remains at 2.5
percent (see forecast table) .
Consumer spending is projected to grow by only 1.5 percent this year, just enough to
prevent a double-dip recession, but not enough to boost the economy as in previous
recovery periods.
Residential construction has been a disappointment for analysts, and is now certain to
subtract from GDP growth yet again in 2010. Further, the strength of residential construction
for 2011 is adjusted to a modest 5.0 percent growth pace.
Business equipment and software spending is projected to continue to show double-digit
growth into 2011, but at a pace reduced from the 15 percent increase expected in 2010.
Overall, the U.S. economy remains in slow-growth mode, afflicted by uncertainty and caution
as businesses and consumers ride out the aftermath of the Great Recession.
Reprinted with permission from Knowledge@W.P.Carey. To read more click here.
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