Deutsche sees risk of U.S. GDP falling 10 pct in Q1

Mar 4, 2009

NEW YORK, March 4 (Reuters) - Deutsche Bank predicted there are risks that the U.S. economy could contract by as much as 10 percent in the first quarter, given the relentless wave of dismal economic data being reported in early 2009.

Deutsche Bank U.S. economists Joseph LaVorgna and Carl Riccadonna expect first-quarter Gross Domestic Products to shrink by 8 percent, steeper than the 6.2 percent fall in the fourth quarter.

"However, the risks are skewed heavily on the downside, so we would not be surprised after revisions, if output end up being down closer to minus 10 percent," they wrote in a research note released on Wednesday.

While retail sales showed a surprise increase in January, news from other categories like business investment and inventories has suggested further economic deterioration since late 2008, according to LaVorgna and Riccadonna.

"We believe there is strong likelihood that growth will be significantly weaker this quarter," they wrote.

They forecast growth to return in the fourth quarter, roughly plus 1 percent, following a 2.8 percent drop in the second quarter and a flat reading in the third quarter.

However, even with a boost from the federal stimulus package, there is a chance that growth may not return in the second half of the year, they caution. (Reporting by Richard Leong; Editing by Theodore d'Afflisio)