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Economist forecasts continued slow recovery

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Economist Joseph E. Kasputys has given dark business outlooks to American Business Media members in previous appearances at association gatherings the past couple of years during the Great Recession.

“I have a little bit better news,” he said Monday at the ABM's Executive Forum in Chicago.

The operative phrase in that quote, however, is “a little bit.” In his presentation, “Recession Aftershocks: Global Business and Policy Challenges,” Kasputys, chairman and founder of Global Insights, said the U.S. economy will experience slow growth of around 2.25% in 2011. He said that should rise to 3% in 2012.

Even with this slow growth, businesses in the U.S. are sitting on mountains of cash, but remain too cautious to spend it, Kasputys said, adding, “Corporate cash is at near record levels.”

Kasputys said business media companies, because they bring buyers and sellers together, might be able to help corporations begin spending at least some of their cash again. “Your mission at American Business Media is to get them to spend that money,” he said.

In addition to corporations sitting on their cash, consumers are also not spending much. The consumer savings rate is approaching 7%, an unusually high number compared with recent decades, Kasputys said, calling it an “epidemic of U.S. thrift.”

Additionally, high unemployment persists, with 30% of people unemployed in the U.S. having been out of a job for six months or more, he said.

Kasputys said that typically a recovery after a recession starts very strong, with annual growth in the 5%-to-7% range. But the Great Recession was not a typical recession. “It was a balance sheet recession, not a cyclical recession,” Kasputys said.

Recoveries from financial collapses like this one tend to have longer, slower recovery cycles. “Usually it takes about four years for jobs to recover fully to where they were, and about six years for housing prices to recover,” Kasputys said.

He also said the U.S. is risking inflation with its recent “quantitative easing,” in which the Federal Reserve has committed to buying $600 billion in treasury bills.

While developed economies such as the U.S., Europe and Japan lag, faster growth is occurring in developing nations. But this growth has in it the potential for a double-dip recession, which Kasputys said is unlikely but nonetheless possible. As capital moves into these attractive economies, an asset bubble may be created. Specifically, he said a Chinese real estate bubble appears to be developing.

“If that happens, we could see a double-dip recession,” he said.

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