Panel further cuts US growth forecast

WASHINGTON: A top panel of economists has further slashed its forecast for US economic growth this year, saying the threat of war with Iraq is dampening consumer spending and business activity. 

The Blue Chip Economic Indicators panel of forecasters said yesterday it now expected US gross domestic product (GDP) to expand at a rate of 2.6% in 2003. The new prediction was down from a rate of 2.7% projected in February and 2.8% forecast in January. 

The reduction was based on the belief that economic growth in the first half of the year would be weak, given signals that Washington is poised to go to war with Iraq.  

Other factors, such as snowstorms on the US east coast, had also depressed growth during the early part of the year. 

The panel projected a growth rate of only 2.2% for the first quarter of this year, a reduction of four-tenths of a percentage point from the 2.6% projected in February. The group also lowered the second-quarter GDP growth prediction by four-tenths of a percentage to 2.8%.  

A GDP increase of 3.6% is expected for the third quarter, while fourth-quarter GDP growth is pegged at 3.8%.  

“While several indicators of economic activity in January proved to be stronger than expected, February data – also influenced by severe winter storms in the eastern half of the nation – are expected to generally come in on the soft side,” the panel said.  

“But some analysts caution that growth could remain weak in March as the initiation of US action against Iraq freezes consumer and business activity for a time,” it added. 

While the polls results were gloomy, they might have been even more pessimistic if analysts took into account the latest employment figures. 

The Labour Department reported last Friday a 308,000 plunge in payrolls in February and a rise in the unemployment rate to 5.8% from 5.7%.  

The decline in February payrolls was the sharpest since November 2001, just after the Sept 11 terror attacks on the US. Analysts said war fears had led to a widespread reluctance to hire, although some temporary factors, such as the call-up of military reservists, also depressed recent payrolls data. 

The Blue Chip survey was conducted before the jobs data were released. – Reuters  

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