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SIFMA’s Economic Advisory Roundtable today released its outlook for the full year 2011 and 2012, forecasting that the economy will grow at a rate of 2.2 percent in 2012.
“While our Roundtable has forecast continued economic growth through 2012, those predictions have been revised downward since our midyear survey,” said Kyle Brandon, managing director, director research at SIFMA. “Concerns over the European debt crisis, along with domestic politics, fiscal policies and regulatory uncertainty remain significant risks to the downside for the economy going forward.”
The Economy:
The median estimate for 2011 gross domestic product (GDP) growth was 1.8 percent on a year-over-year basis, and 1.6 percent on a fourth quarter-to-fourth quarter basis. For 2012, the median forecast was 2.2 percent year-over-year and on a fourth quarter-to-fourth quarter basis, on a quarterly basis, GDP growth was expect to fall slightly in the first quarter of 2012 to an annualized rate of 1.9 percent and rise gradually throughout the year to reach 2.6 percent in the fourth quarter.
The European debt crisis, domestic policy and politics, and the normalization of private credit markets and self-correcting adjustments by businesses were ranked as the three most important factors impacting U.S. economic growth. Other facts mentioned were housing market stability and gas prices.
Unemployment was expected to remain significantly elevated throughout 2012. Survey respondents expected full-year average unemployment rate to be 9.0 percent in 2011, declining to 8.7 percent in 2012. For full-year 2012, the median expectation for nonfarm payroll employment gains were for an addition of 1.5 million jobs, considerably below the 2.5 million forecast in the mid-year 2011 Roundtable survey.
The median forecast for “headline” inflation, measured by the personal consumption expenditures (PCE) chain price index, was 1.7 percent for full-year 2012.
Monetary Policy and Rate Forecast:
The Roundtable expected the FOMC to maintain its 0.0 to 0.25 percent federal funds target rate throughout 2012 and beyond. Survey respondents also expected credit market risk aversion and economic growth prospects to have the greatest impact on long-term Treasury yields in 2012, distantly followed by FOMC interest rate policy and the budget deficit.
Europe:
The survey asked about the impact of European Union sovereign debt market conditions on the respondents’ perception of risk in the U.S. credit markets. All of those who responded to this question agreed that there was increased risk in the U.S. credit markets due to conditions in Europe.
Several panelists noted that the U.S. financial markets and economy were greatly exposed to the risk of contagion from a systemic event arising from Europe, and that the increased risk was largely derived from the pass through of financial market strains to the U.S. Respondents also noted that due to fears of contagion, U.S. financials’ credit spreads are wider than they would be otherwise.
Financial Regulatory Reform:
When asked about the impact of uncertainty or concern over the direction of regulatory policy, 85 percent of respondents estimated a negative impact of up to one percent in GDP in 2011 and 90 percent forecast the same for 2012. Pending regulations mandated by Basel III (global regulatory capital and liquidity requirements) and the Volcker Rule (U.S. restrictions on proprietary trading and investment in hedge and private equity funds by banks or bank affiliates) were cited as having the most negative impact, followed by Dodd Franks’ Title VII (OTC derivatives regulation).
The full report can be found at the following link: http://www.sifma.org/econoutlook20112h/
