Prospects 2012: U.S. Economy Should Continue To Recover Slowly, But Risk Of Renewed Recession Remains

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by: Research Recap

Although it has been more than two years since the official end of the recession of 2008-09, economic recovery in the U.S. remains decidedly subpar, says Oxford Analytica in PROSPECTS 2012: U.S. economy.

Conditions are likely to remain challenging in 2012, but the U.S. economy should experience moderate growth led by business investment spending and a gradual revival of the real estate sector. As the largest economy in the world, the United States sets the tone for global economic growth. If it can post positive — albeit unspectacular — growth in 2012, the risks of a pervasive global slowdown will be reduced. If it succumbs to serious headwinds and experiences a "double dip," the world economy is almost certain to experience its second major recession in four years.

Continued downward pressure from multiple headwinds is likely to constrain economic expansion in 2012, but these should slowly dissipate over the course of the year.

Consumer spending is likely to remain subpar in 2012, but investment spending is holding up well and should help set the stage for at least moderate growth of 2.50-2.75% for the year. If housing activity finally gets back on its feet after six years of recessionary conditions, the U.S. economy could experience growth of 3% or more. However, the critical downside risk is that slower growth or financial turmoil in the euro-area could hurt exports and confidence — and even lead to renewed recession.

Investment spending is likely to remain a key engine of economic growth. Corporate balance sheets remain flush and U.S. firms have always been among the most aggressive spenders in the industrial world on new technology, which they regard as critical to remaining competitive and efficient. There is also evidence of a turnaround in investment in non-residential structures (including office buildings, plants, and retail space) that should sustain growth.