'07 growth to be weak, forecast says
WASHINGTON - Strained by an ailing housing market and credit woes, the economy in 2007 will log its worst growth in five years and be somewhat sluggish next year, according to one forecast.
The number one risk, though, is that the economy will lose its footing and fall into a recession, forecasters say.
A report released yesterday by the National Association for Business Economics puts the growth of gross domestic product at 2 percent for this year. The pace was 2.2 percent in the group's previous survey, in May.
If the latest prediction proves correct, growth would be the weakest since 2002, when the economy was emerging from a recession and grew by just 1.6 percent. Economic growth for next year also was downgraded slightly. The economy is now projected to grow by 2.8 percent in 2008, versus 2.9 percent in the previous survey.
GDP is the value of all goods and services produced within the United States. It is considered the best barometer of the country's economic fitness.
Forecasters are concerned about the risk of recession. More than 60 percent of those responding cited recession "as the major risk facing the economy over the next year, while only a third cited inflation as the greatest problem," the group said.
Those most concerned about the threat of recession tended to cite problems in the higher-risk subprime mortgage market and potential declines in home values as the most likely forces that could short-circuit the six-year-old economic expansion.
Mortgages entering foreclosure hit a record in the spring. Higher interest rates and weaker home values have made it difficult for a growing number of people to pay their mortgages. As defaults have soared, lenders have been forced out of business. A spreading credit crisis has roiled Wall Street.
To help the economy, the Federal Reserve will lower its key interest rate, the forecasters predicted. The rate is now at 5.25 percent. Cuts this year and next could drop this rate to 4.75 percent, the forecasters said.
The survey, of 46 forecasters, was done Aug. 2 through Aug. 23, as credit markets seized up. That forced the Fed to pump billions of dollars into the financial system and to cut its interest rate to banks for loans.
Forecasters' projections, however, were gathered before Friday's release of a Labor Department report that showed that for the first time in four years, employers actually cut jobs. The economy lost 4,000 positions over the month.
That weak employment report prompted some economists to predict the Fed might slice its key rate by as much as half a percentage point on Sept. 18. Others, however, think the Fed will lower it by one-quarter percentage point.
