Mussa rejects pessimists' views, more upbeat on economic recovery

While most forecasters are expecting a tepid global economic recovery, former International Monetary Fund chief economist Michael Mussa is expecting a steeper rise.

“[I] reject the views of many pessimists who foresee a prolonged period of very sluggish growth rather than a more normal cyclical recovery, Mussa, now a senior fellow at the Peterson Institute for International Economics, wrote last week.

Mussa attributed a “mood of pessimism that usually pervades the early stages of recovery.”

Main concerns are restrained consumer spending, unhealthy financial institutions, “key international imbalances,” and uncertainties about unwinding “extraordinary monetary and fiscal policy easing.”

Real global GDP will fall 1.1 percent this year and 4.2 percent in 2010 compared with IMF expectations of a 1.4 percent drop this year and 2.5 percent global growth next year.

Looking at the U.S., Mussa expects cumulative rise in GDP from the second quarter of 2009 to the end of 2010 will be almost 7 percent, or about $875 billion in 2005 chained dollars.

While a Blue Chip survey sees only a $426 billion increase in US real GDP from the economic bottom from the second quarter of this year through 2010, Mussa expects growth of $875 billion.

“The difference between these forecasts is substantial,” he says.

While the survey saw unemployment rising above 10 percent by early next year and showing little decline in 2010, Mussa forecasts see a slight peak above 10 percent and a fall below 9 percent by the end of next year.

Even if GDP grows at a 4 percent annual rate after 2010, he says it will be until 2014 before unemployment declines to about 5 percent.

Nevertheless, “the present forecast envisions only two-thirds the growth that the US economy has normally enjoyed during the six quarters following recessions of the 1950s through the 1980s,” he states.