The acceleration in third-quarter GDP growth to 2.5% annualised, from 1.3%, seemed to make a mockery of fears that emerged early in the quarter that the economy was entering a recession. Nevertheless, we still expect growth to slow again over the next couple of quarters and average a lacklustre 1.5% next year. Even if fourth quarter GDP growth holds up relatively well, the first quarter of next year is shaping up to be the crunch time for this recovery. If the temporary stimulus measures such as the payroll tax cut, extended unemployment benefits and accelerated depreciation allowances for businesses are all allowed to expire at the end of this year, we would expect GDP growth to slow to a crawl and a brief contraction is not out of the question.
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