Amid gloom, signs of hope for economy in 2009

John W. Schoen Senior producer • Profile • E-mail

Unemployment is soaring, consumer spending is shrinking and both the stock and housing markets are on track for one of their worst years on record. As 2008 comes to a close, the economic outlook for the coming year is pretty grim.

But a panel of economists surveyed by msnbc.com says that — maybe, if all goes well — we could be closer to the end of this recession than the beginning. Now 12 months into a downturn that appears to be deepening, there are early signs that the elements may be coming into place for a convincing recovery. That “best case” forecast calls for the worst of the downturn easing by the middle of next year, with slow but steady growth in the second half of 2009.

“We do have a number of forces that could come together to produce what could be a fairly strong recovery,” said Nariman Behravesh, chief economist at Global Insight.

One of the major forces pushing the economy back on a growth track is a historic series of moves by the Federal Reserve to pump trillions of dollars into the financial system. Another is the huge package of tax cuts and government spending — some believe it could approach $1 trillion — that the incoming Obama administration could have in place by early next year. And the recent plunge in oil prices has provided what amounts to a $250 billion-a-year rebate for consumers who have sharply reined in spending.

“All this put together is massive,” said Behravesh. “So there is now the distinct possibility — if the timing is right — it could all hit at the latest in the second half of the year, and you could actually have a real pop in growth.”

Special report: Economic roundtable This is the seventh annual installment of msnbc.com's year-end economic roundtable. Click here for a list of panelists and their full predictions.

To be sure, the ongoing recession — even in the best case — could go down as one of the worst since the Great Depression. Even if a recovery arrives in mid-2009, job growth will likely lag even as the gross domestic product begins expanding again. And it could take years to repair  damage to the financial system and impose regulations to prevent another meltdown.

But as historic as the financial panic and recession turn out to be, the government’s response has been unprecedented.

Since the crisis began in September, the Federal Reserve has let interest rates fall to near zero and announced a variety of measures to flood the economy with cash, trying to fill the void left by the collapse of the credit bubble. The idea is to take the pressure off the battered balance sheets of American companies, banks and households.

The Fed’s efforts have been bolstered by an allocation of $700 billion in taxpayer funds, about half of which has been committed through the Treasury's Troubled Asset Relief Program to help banks, insurance giant AIG and automakers.  Though some lawmakers who authorized the program have been frustrated with the continued sluggish pace of private lending, rates have fallen and there are signs the credit markets are beginning to thaw. Last week, 30-year mortgage rates fell to their lowest levels since 1971.

With the benchmark overnight lending rate already near zero, the Fed has pledged to keep pumping cash into the financial system and “employ all available tools” to get the economy growing again.

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