A majority of American investors believe the troubled US economy has fallen into a recession, according to a survey released Tuesday by asset management giant Schroders. A total 62 percent of the poll respondents said they believed that the world's largest economy was contracting, Schroders Investment Management said. Despite this gloomy outlook, however, nearly all the investors polled, or 94 percent, said they still expect to reap a positive return on their market investments during the next 12 months. “While we anticipate that the economic performance in the US will be significantly worse than originally expected, the interest-rate outlook is more favorable and ultimately the inflation outlook is as well,” said Alan Brown, chief investment officer at Schroders. Although some investors believe the US economy is in a recession, it is still expanding albeit at a lackluster pace. The economy grew at a 1.0 percent annualized clip in the first quarter, according to government figures, and most economists believe growth accelerated to a 2.3 percent pace during the second quarter. But US stock markets have fallen sharply this year amid a continued housing market slump, a broad credit crunch and rocketing world oil prices. Despite the housing market woes, the Schroders survey showed that 27 percent of investors still see property as one of the top three investment categories during an economic downturn, alongside US and foreign stocks. And although the hedge-fund industry has expanded aggressively in recent years, just two percent of investors viewed them as an “opportunistic” investment, according to the survey. Schroders manages $259 billion in client assets. Its online survey of 507 US investors, holding at least 100,000 dollars in investments, was conducted between May 27-28. Meanwhile, the White House predicted Monday that President Bush would leave a record $482 billion deficit to his successor, a sobering turnabout in the nation's fiscal condition from 2001, when Bush took office after three consecutive years of budget surpluses. The worst may be yet to come. The deficit announced by Jim Nussle, the White House budget director, does not reflect the full cost of military operations in Iraq and Afghanistan, the potential $50 billion cost of another economic stimulus package, or the possibility of steeper losses in tax revenues if individual income or corporate profits decline. The new deficit numbers also do not account for any drains on the national treasury that might result from further declines in the housing market. The White House forecast was prepared before passage of the huge housing assistance package that Bush has promised to sign. That legislation would put taxpayer money at risk in numerous ways, especially if housing prices continue to decline. Nussle predicted Monday that the deficit would more than double in the current 2008 fiscal year - to $389 billion, from $162 billion in 2007 - before shooting up to $482 billion in the 2009 fiscal year, which begins in about two months. The deficit projected for 2009 would be the largest in absolute terms, easily surpassing the record of $413 billion in 2004. The White House and many economists prefer to measure the deficit as a share of the economy. The projected 2009 deficit would be 3.3 percent of the economy. That is the largest share since 2004, but well below the percentages recorded in the 1980s and early 1990s. In 1983, the deficit was 6 percent of the overall economy. The bleak outlook for the budget will crimp the ability of the next president to carry out ambitious spending plans. And it adds to fiscal pressures that were already building because of the growth of Medicare and Social Security.
