Thursday, January 15, 2009

Stanford economists predict recovery in second half of 2009

Stanford University economists Nicholas Bloom and Max Floetotto explain why they believe the economic recovery will begin during the summer:
The heightened uncertainty after the credit crunch led firms to postpone investment and hiring decisions. Mistakes can be costly, so if conditions are unpredictable the best course of action is often to wait. Of course, if every firm in the economy waits, economic activity slows down.

But now that uncertainty is falling back growth should start to rebound. Firms will start to invest and hire again to make up for lost time. ... After falling by 3% between October 2008 and June 2009, we forecast GDP will rapidly rebound from July 2009 onwards. ...

Many economists make the case for a stronger policy response. That might be right, but policy makers need to act fast. ... Dithering over different courses of policy will actually make things worse by adding uncertainty.

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