Archive for Monday, May 23, 2005

Economists lower forecast for growth

Experts expect trade deficit to worsen during year

May 23, 2005


— The yawning U.S. trade deficit probably will weigh down economic growth this year, business economists say.

The economy, as measured by gross domestic product, is projected to expand by 3.4 percent in 2005, compared with an earlier estimate of 3.6 percent, according to the latest outlook from the National Association for Business Economics.

The lower forecast mostly reflects economists' beliefs that the trade picture will worsen.

The U.S. trade deficit, which ballooned to a record $617 billion last year, is a politically sensitive subject for the Bush administration.

"Virtually the entire reduction in the panel's estimate of GDP growth in 2005 was due to a much deeper projected trade deficit of $662 billion this year," Carl Tannenbaum, who oversaw the survey, said in an interview.

If the projections being released today prove accurate, they would mark a slowing in growth from the 4.4 percent increase in GDP in 2004. That was the strongest showing in five years.

GDP, which measures the value of all goods and services produced in the U.S., is considered the broadest barometer of the economy.

If the economy does grow by 3.4 percent this year as the association projects, it would be a respectable performance.

"Our panelists still think the economy is doing fine," said Tannenbaum, chief economist at LaSalle Bank.

The pace of growth also should be sufficient to bring about improvements in the job market. Forecasters anticipate the unemployment rate, which averaged 5.5 percent last year, will dip to 5.2 percent this year.

On the inflation front, consumer prices are expected to rise this year by 2.8 percent, compared with a previous forecast of 2.2 percent.

One of the main reasons for the higher estimate is that economists' believe oil prices will hover around $46 a barrel this year, compared with an earlier estimate of about $40, Tannenbaum said.

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