The annual economic forecast from the Indiana University Kelley School of Business economists is more optimistic than it has been in recent years, suggesting 2015 could be the best year of economic recovery since
the Great Recession.

The annual economic forecast from the Indiana University Kelley School of Business economists is more
optimistic than it has been in recent years, suggesting 2015 could be the best year of economic recovery since the Great Recession.

"During the past year, the United States economy has given clear signs that it is finally breaking out of the rut it had been stuck in during the first four years of the recovery," said Bill Witte, IU associate professor emeritus of economics, a member of the panel. "Looking ahead, we expect the coming year to produce a continuation of these positive trends." Witte, however, hedged the forecast by adding, "The level of uncertainty in the current environment is high."

During the first four years following the recession, from mid-2009 through mid-2013, output growth averaged just 2 percent. The IU forecast sees output growth closer to 3 percent in 2015, a result of a stronger housing sector and more government spending.

The labor market in 2015 also looks more positive, with a forecast of monthly employment increases above 220,000 throughout the year, and the possibility of more than 300,000 jobs added during peak months. The forecasters predict the unemployment rate could fall below 5.5 percent by the end of the year.

• Inflation will remain contained and close to its present level of 2 percent, due in large part to lower energy prices.
• While the housing market should be stronger in 2015, it is unrealistic to think that it will return to pre-recession levels.
• With the Federal Reserve's decision to end quantitative easing, interest rates should begin to rise by the middle of the year, and short-term rates could reach 1 percent by the end of the year. "If the Fed begins to raise interest rates as we expect, there will be the potential for significant instability in the financial sector," Witte warned.
• Much of Europe appears to be heading toward its third recession in a decade. Concerns about security and stability in Eastern Europe and the Middle East will continue and adversely affect economies in the region and beyond. The Chinese economy, which has enjoyed double-digit growth for about 30 years, is clearly decelerating.

For their own state, the panel predicts a slightly lower rate of growth for Indiana in 2015. Economic growth in central Indiana has been stronger than it has been in years, with the local economy expected to 40,000 new jobs by the end of 2014. The Indianapolis real estate market has been a source of growth, with median home prices up 13.9 percent over last year, and inventories up 7.7 percent. Economic growth will continue to spur demand for housing, but rising interest rates may dampen some of enthusiasm among homebuyers. Construction projects in downtown and in suburban counties will be an important source of this growth.