The Director of the Congressional Budget Office [CBO], Douglas Elmendorf, said in testimony to the House Budget Committee Thursday that the economy will start growing in the second half of 2009, but the “hardships caused by the recession will persist for some time.”
From CBO: “Even if the economy returns to positive growth this year, the loss in output, income and employment during the recession and the next few years will be huge”, Elmendorf said. “Under CBO’s forecast from March, the difference between the economy’s actual and, potential output will average 7 percent of GDP (which is equivalent to about a trillion dollars) this year and next, and that gap in output will not close until 2013…CBO’s forecast in August is likely to show even larger shortfalls in output over the next few years. By this measure, the current recession and its aftermath will be the most severe economic downturn of the postwar period,” Elmendorf added.
Addressing the fortunes of commercial real estate Elmendorf noted that “the fundamentals in the market are very weak.” He said current price declines of between 35% and 45% exceed those of the early 1990s, when commercial property collapsed.
According to CBO the unemployment rate will continue to rise into the second half of 2010 and will peak at 10.5%. The pattern of past recessions indicates that employment will not increase and the unemployment rate will not decline until two to four q’s after output begins to increase again. In March, CBO forecast unemployment would peak in the first half of next year at 9.5%.