U.S. slowdown seen but no recession

Economists have trimmed forecasts for U.S. growth in the second half of this year and in 2009, but more have come to the view that the United States will dodge a recession, a survey released on Tuesday showed.

Blue Chip Economic Indicators, a monthly newsletter, said 53.5 percent of the 48 private economists surveyed for its June issue do not believe the U.S. economy is in or will enter a recession in 2008, up from 40 percent in the May survey.

"The consensus now suggests the downturn in economic growth will be less steep than earlier feared, but the subsequent recovery in growth to its trend rate will take longer than hoped a few months ago," the newsletter said.

The economists polled on June 2 and 3 projected third-quarter growth at a 1.5 percent annual rate, down from the 1.7 percent pace forecast a month ago. For the fourth quarter, they said the economy would likely expand by 1.2 percent, down from the 1.5 percent projected a month ago.

Despite the downgraded expectations for the second half of 2008, the consensus forecast for the year as a whole moved up to 1.5 percent from 1.4 percent as economists took into account an upward revision to first-quarter growth and bumped up their expectations for the second quarter to a still-anaemic 0.4 percent from 0.2 percent.

The consensus projection for 2009, however, slipped for a sixth straight month, dropping to 1.9 percent from 2 percent.

Most analysts surveyed assumed below-trend economic growth will eventually free up enough spare economic capacity to begin exerting downward pressure on prices, the newsletter said.

"As a result, inflation is expected to increase much less in 2009 than in 2008," it said. The economists forecast that consumer prices would advance 3.9 percent this year, but just 2.6 percent in 2009.

The Federal Reserve has cut benchmark interest rates by 3.25 percentage points since mid-September to help buffer the impact of a deep housing downturn and tight credit, but policy-makers have signalled growing concerns on inflation.

The Blue Chip survey found the consensus of economists was that the Fed was finished lowering interest rates. However, the newsletter said the U.S. central bank was not expected to start raising rates until the second quarter of next year.