Tags: swonk | credit crunch | recovery | economy | diane

Swonk: Credit Crunch Is Strangling Recovery

By Gene J. Koprowski   |   Wednesday, 16 Dec 2009 08:12 AM

The “headwinds” associated with the credit crunch will linger and limit the degree to which the U.S. economy can recover from the recession, says Diane Swonk, senior managing director and chief economist at Mesirow Financial

“We should be at 6 percent growth, rather than 3 percent,” she writes in her firm’s annual economic outlook.

“The economy surged at a 7.7 percent rate for six consecutive quarters as it emerged from the recession of the early 1980s.”

For the next year, Swonk says, the U.S. economy will continue to grow, but only tepidly.

“Consumer spending is expected to rebound, aided initially by pent-up demand and the spillover from the 2009 pick-up in home sales,” she believes.

“It takes at least a year for homeowners to fill and remodel the homes they just bought.”

Persistently tight credit, however, she thinks will stop the savings rate from falling back to zero in the U.S.

“The era of living chronically beyond our means has passed,” says Swonk. “Credit available to consumers and small businesses, however, is still a small fraction of what it was prior to the recession.”

As a result of these factors, the economy is likely to grow at just 3 percent in 2010, which is quite weak relative to history, “but still slightly above the economy’s underlying potential,” says Swonk.

Unemployment may have peaked and will trend down during the last two quarters of 2010.

Others agree. The BBC is reporting that the credit crunch is harming entrepreneurs, dimming their dreams of expansion.

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The headwinds associated with the credit crunch will linger and limit the degree to which the U.S. economy can recover from the recession, says Diane Swonk, senior managing director and chief economist at Mesirow Financial We should be at 6 percent growth, rather than...
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2009-12-16
 

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