RECESSION PREDICTIONS.

RECESSION PREDICTIONS. I recorded my changing personal subjective probabilities for a recession here. I now have raised the probability of a recession in the United States to 100% because the recession in the United States is here. GDP in the United States is estimated to have dropped by 0.3% in the third quarter after having grown by 2.8% in the second quarter. The fourth quarter will also have a drop, meeting the two-quarter decline test for a recession. I specify the United States because even with Europe looking to be in recession, there are those who think that with China still growing, there may not be a recession for the world economy (using the two-quarter decline test). A friend whose opinion I value wrote just a couple weeks ago that even with “a reasonably optimistic scenario”, including a return to functioning credit markets, world GDP growth in 2009 could fall to 3.5%. The substantial growth up until now in the rest of the world made a recession in the United States and Europe seem less probable, but here we are.