Bank of America economist sees GDP at 2.2%

Recession-like conditions may be evident in some sectors

By Tom Stundza -- Purchasing, 1/9/2008 10:35:00 AM

Bank of America’s chief economist, Mickey Levy projects only “slight growth in domestic demand in the first half of 2008, and recession-type conditions in some industries”—such as automotive and household durables. Consumption is projected to grow at a 1.9% annualized rate in the first half, he writes, “a marked slowdown from recent years,” but will pick up to 2.7% growth in the second half.

Levy writes to bank clients that he agrees with the consensus of a full-year 2008 growth in gross domestic product (GDP) of 2.2%, saying the expansion will be at a 1.5% pace in the first half of 2008, and then pick up in the second half. But, unlike some other more-bearish commentators, he says the Bank of America economics team sees only about a one-in-three risk of mild recession for the overall economy. That’s because “a continuing decline in the trade deficit will provide a boost to domestic production” of some products.

Levy writes that “because the Fed is easing monetary policy and given the general lack of imbalances in business operations outside of housing, if any recession were to unfold, it likely would be shallow in terms of declines in output, employment and personal income, and it would be followed by economic rebound.”

Still, residential investment is projected to decline by 8.7% in 2008 after collapsing 17.8% in 2007, he writes. Business fixed investment is expected to grow very modestly, while businesses will keep inventories low.

The longer-term outlook is decidedly more favorable, he says, forecasting real GDP growth above 3% in 2009 because “the drag from declining residential construction eventually will run its course, and the Fed’s monetary easing will stimulate growth, beginning in the second half of 2008.”