By Pedro Nicolaci da Costa
NEW YORK, April 8 (Reuters) - The worst U.S. recession since World War Two will not give way to growth until the third quarter as an already withered industrial sector retrenches sharply, according to a Reuters poll.
In a troubling sign for the banking sector, which has been crippled by real-estate loans gone bad, house prices will extend their vertiginous decline, albeit at a slower pace.
Home values as measured by the Case/Shiller index, already down by about a third from peaks set in 2006, will fall 17.7 percent over the course of 2009, the poll found. In a January poll, the consensus view was for a 13.1 percent drop.
U.S. gross domestic product (GDP) will shrink through to mid-year and then grow a meagre 0.1 percent in the third quarter. It will then expand 1.6 percent in the fourth quarter.
The jobless rate will rise to a peak of 9.8 percent in the first quarter of next year from the current 8.5 percent.
"The recession is expected to moderate in the months ahead, but it is still too early to say an economic rebound is about to begin," said Scott Anderson, senior economist at Wells Fargo.
Indeed, the poll of around 70 economists, taken April 1-8, found the economy will shrink 1.3 percent in 2009 as a whole. The 2.5 percent growth economists have forecast for 2010 was down from a 2.6 percent expectation in a poll taken last month.
Analysts caution that even that rebound is contingent on the success of the government's various monetary and fiscal measures, a highly uncertain outcome. They also note that recessions linked to financial crises seldom give way to very impressive recoveries.
One worrying sign that this may also be true in the current case is the consensus for industrial output, often an important leading indicator of business cycle recoveries. It is expected to plunge 9.8 percent this year.
In this environment, prices for many goods in the economy are expected to continue falling. But fears of deflation seem overstated, according to survey results.
A special question in the Reuters poll highlighted confusion about the medium-term direction of prices.
Deflation was still the bigger risk, said about two-thirds, or 28 out of 44, economists forecasting the U.S. The remaining 16 said the threat that sky-high government borrowing and rescue measures will eventually spark rapid inflation was bigger.
Year-over-year declines in consumer prices will occur for the first three quarters of this year, but CPI will then climb back toward the top of the Federal Reserve's 1-2 percent comfort range, the poll found.
"Although we foresee headline inflation to be negative for some months, we do not expect this trend to turn into a deflationary spiral," said Nathaniel Karp, economist at BBVA.
The central bank, for its part, will keep interest rates on hold at the current zero to 0.25 percent range until at least the first quarter of next year.
Apart from aggressive rate cuts, the Fed and Treasury have launched numerous rescue plans stretching into the trillions of dollars aimed at reviving ailing credit markets. Some of these plans have sparked fears of a sharp decline in the dollar and a concomitant bout of inflation.
(Polling by Bangalore Polling Unit; editing by Stephen Nisbet)