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U.S. recession looming in 2007?

Well, the Center for Economic and Policy Research in Washington D.C. certainly thinks so....

Weakness in the US housing market is likely to push the economy into a recession next year, according to a forecast by the Center for Economic and Policy Research (CEPR).

“Recession Looms for the U.S. Economy in 2007,” by CEPR economist Dean Baker, predicts that the economic recovery that began in November 2001 will come to an end in 2007.

“This recovery has been fueled by a housing bubble, just as the late 90s cycle was fueled by a stock bubble,” said Baker. “Now that the housing market has weakened, Americans are looking at a recession in 2007.”

Baker expects that the weakness from the housing market, which is already spreading over to other sectors of the economy, will have an even larger impact in 2007 as consumers lose the ability to borrow against dwindling home equity.  With weak consumer demand dampening investment, the economy is likely to shrink by close to 1 percentage point over the course of the year, Baker has predicted.

CEPR's Predictions for the US Economy in 2007 (2006Q4 – 2007Q4)

• GDP growth  -0.7 percent
• Job growth -1.2 million
• Nominal wage growth 3.4 percent
• Inflation (CPI) 2.6 percent
• Residential construction -12.0 percent
• Consumption -1.2 percent
• Investment 2.0 percent
• Exports 4.0 percent
• Imports -2.0 percent
• Government expenditures  2.0 percent

Baker also forecasts that the Fed will begin lowering rates no later than its first meeting in January 2007 and that unemployment will climb to over 6 percent by the end of 2007.