Julian Jessop at Capital Economics writes in a note Monday that President Obama’s stimulus plan is “better than nothing,” and could easily add a percentage point to GDP growth in 2009 and 2010. Unfortunately, he writes, “we (and presumably most others) had already factored this sort of boost into our forecasts, and it is unlikely to prevent the economy from continuing to shrink well into 2010.”

He has three main concerns about the plan:

  • First: The size and timing of the package. “The headline number of $787 billion is often described as equivalent to as much as 5½% of 2009 GDP. However, the $787 billion refers to the estimated total cost over the eleven fiscal years to 2019. …[T]he boost to activity in any one year will much be smaller than the headlines suggest.”
  • Second: The pieces of the plan. “The compromise [package] is a dog’s breakfast of populist measures and pet projects with little evidence of any coherent strategy. … Our worry therefore is that the lack of an obvious focus to the plan will act to dilute its impact, especially on [consumer] confidence.”
  • Third: Other boosts haven’t righted the ship. “[I]t is worth stressing that the U.S. economy had already benefited last year from two major stimuli – the fiscal package under the Economic Stimulus Act of 2008, worth around $150 billion, and the boost to real incomes from the fall in gasoline prices, which was worth at least the same again. Despite this, the economy ended last year on a very low note – it now looks like GDP shrank at an annualized rate of around 5% in the fourth quarter.”