Economy still facing recession, rebound seen tepid

By Burton Frierson

NEW YORK (Reuters) - The economy is still facing a possible recession this year, with any recovery stunted by inflation that prevents the Federal Reserve from cutting interest rates again, according to a Reuters poll.

The Fed has already slashed rates by 3.25 percentage points since September to fight the effects of a housing slump, a drag on spending from record oil prices and four consecutive months of job losses.

The latest poll of over 100 economists, taken May 15-21, was moderately more upbeat than one taken a month ago, in part because first quarter economic growth, at an annualized 0.6 percent, was not as bad as many had feared.

They now see growth at 1.2 percent this year on a fourth-quarter over fourth-quarter basis, slightly above last month's forecast of 1.0 percent. The median forecast is also at the upper end of the Federal Reserve's own central range published on Wednesday.

But they expect the economy will contract in the current quarter by an annualized 0.3 percent, though they were split on whether or not it will slip into recession, putting a median 50 percent probability on such an outcome.

That compares with the April survey, where 42 of 58 economists who answered the question said the U.S. was already in the beginning of a recession, usually defined as two quarters of negative economic growth.

But economists agree any rebound, recession or not, will be lackluster. They revised down growth expectations for the third quarter to 1.6 percent from 2.0 percent and for the fourth quarter to 1.2 percent from 1.6 percent.

"The depth of the recession remains to be seen but the recovery, when it comes, is likely to be tepid at best," said Richard Iley, senior economist at BNP Paribas in New York.