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Economist Mark Zandi: chance of second recession 1 in 4

Mark Zandi, chief economist and cofounder of Economy.com, says the chances of a second recession are low. But should one occur, it would be even more difficult for the US to rebound again.

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Chief economist Mark Zandi is cofounder of Economy.com, a firm that has more than 500 clients worldwide and provides economic research to business, governments, and investors. Mr. Zandi was an adviser to John McCain’s presidential campaign and testifies frequently before Congress. He was interviewed Dec. 2 by telephone.

On the economic outlook for 2010:

Economy.com anticipates “real GDP [gross domestic product] growth of 2 percent in 2010 calendar year and growth of closer to 4 percent in 2011.”

On the unemployment outlook:

“I would be surprised if we don’t get close to 11 percent, primarily because we are at 10 [percent] currently with a falling labor force, which is very unusual. So when those people come back into the workforce, and they will have to as they run out of severance [and] unemployment insurance, then labor force growth will resume and 11 percent unemployment seems very plausible.”

On his concern, mentioned before Congress’s Joint Economic Committee, that firms will be too shellshocked to resume hiring:

“The concern grows with each passing month that we don’t see hiring revive. I do think that, with some of the [government] policy efforts that are likely to take place, we will avoid going back into recession.”

On the likelihood of the US falling back into recession:

“The probability of going back into recession is still low. It is about 1 in 4, 1 in 5. But that is too high, and, more important, if we do go back into recession – if all economists are wrong and we do go back into recession – it will be very painful, it will be very difficult to get out of it. So I think it is very important to guard against that.”

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