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Economists cut back predictions for growth

September 11, 2007|From Reuters

Panelists with the National Assn. of Business Economics trimmed their outlook for residential investment and marked down expectations for productivity growth in 2008, according to a survey of economists released Monday.

The "panelists see a reduction in economic growth across major spending categories," said Ellen Hughes-Cromwick, the association's president-elect and chief economist at Ford Motor Co.

The panel trimmed its earlier view for a rebound to above-trend growth in 2008.

Real gross domestic product, the broadest measure of economic output, is forecast to advance 2.2% in 2007 against 2.3% in the group's survey in May.

Projected 2008 growth was cut to 2.8% from 3.1%, with reductions concentrated in the first half.

"Over 60% of the respondents cited recession as the major risk facing the economy over the next year, while only a third cited inflation as the greatest problem," the association said.

Those most concerned about a recession tended to cite problems in the sub-prime mortgage market and potential declines in home values as likely triggers.

Still, many thought that recession, while a risk, could most likely be avoided -- with some help from the Fed.

The survey, reflecting the estimates of 46 economists, was taken Aug. 2 to Aug. 23, before last week's dismal job report.

That period began with relative calm before descending into a global credit meltdown capped by a cut to the Fed's discount rate and the issuance of a Federal Open Market Committee statement that effectively shifted the bank to rate-cutting bias.

Only a third of respondents said "domino effects" were underway where losses in the sub-prime loan market would spread to many other sectors.

The panel trimmed its outlook for 2008 consumer spending growth to 2.5% from 2.8% and also cut its estimate for business fixed investment.

Housing starts for 2008 were forecast at 1.4 million units, down about 100,000 from the May survey.

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