Investors, consumers and businesses have had a fair share of concerns in 2004: high fuel prices, less-than-stellar job growth and volatile swings in the stock market, which remains well below the highs set four years ago. But by many measures the year is ending well. Oil prices dropped in December, hiring has picked up, and the Standard & Poor's 500, thanks to a string of gains in the fall, returned nearly 8% from the start of the year through mid-December.
Will the good news continue in 2005? The smart money says the coming year will probably bring decent, but not terrific, gains in economic growth and stock prices, according to four Wharton professors. But they do see hazards in the deepening federal and current-accounts deficits and the falling dollar.
"I think it looks reasonably good," said Wharton finance professor Jeremy Siegel, referring to the economy and stock markets. "I think we can have 3½% to 4% real growth [in gross domestic product], with very moderate inflation - 2 ½%."
Corporate leaders recently polled by the Business Roundtable survey have similar expectations, forecasting 3.5% GDP growth in 2005. Similarly, Anthony M. Santomero, a Wharton professor on leave to serve as president of the Federal Reserve Bank of Philadelphia, has forecast 3.5% to 4% GDP growth in 2005, compared to the 3.75% he expects for 2004.
Wharton finance and economics professor Richard Marston says he, too, expects GDP to grow 3.5% to 4% in 2005. "That's a healthy economy in its middle stage of expansion." Corporate profits, he added, are not likely to grow as fast on a percentage basis as they have this year, because 2004's strong profits provide a higher base for comparison. In 2004, it was comparatively easy for businesses to show big gains over the weak earnings of 2003.
[continue]
Page 1 of 6
> >>