Bank economists see modest but steady U.S. growth

By Pedro Nicolaci da Costa

WASHINGTON (Reuters) – U.S. economic growth will remain soft for the foreseeable future but the country is unlikely to slip back into recession, according to a survey of bank economists.

The poll, conducted by the American Bankers Association’s Economic Advisory Council, sees growth picking up in the second half of the year following an anemic first half that has seen employment growth grind lower.

That will leave overall expansion in U.S. gross domestic product averaging 2.4 percent for 2011 as a whole, rising to 3.2 percent in 2012. Respondents saw just a 15 percent chance of another recession this year or next.

However, the U.S. jobless rate is expected to remain far above normal for as far as the eye can see. Having risen to 9.1 percent in May, it is projected to decline gradually to around 8 percent at the end of next year.

The economy emerged from its most severe recession since the Great Depression in the summer of 2009, but the expansion has been uneven and failed to generate substantial gains in employment. U.S. GDP grew just 1.8 percent in the first quarter on an annualized basis, not nearly enough to instill businesses with the confidence they need to boost hiring.

Peter Hooper, Deutsche Bank chief economist and chairman of the ABA’s economic committee, said consumer spending and residential investment would not make large contributions to growth in coming months.

Inflation is expected to come down following some elevated energy-linked readings at the start of this year, converging toward the Federal Reserve’s implicit target of 2 percent or a bit below through the remainder of this year and in 2012.

The Fed’s $600 billion monetary stimulus launched in November came under sharp criticism from conservative economists and politicians, who argued the policy was raising the danger of inflation in the future.

Against that backdrop, the ABA economists do not foresee another round of bond buying by the Fed. Instead, they predict the U.S. central bank will start to withdraw its extraordinary support to the economy in the middle of next year.

Hooper cited a number of downside risks to economic growth, including the possibility of a renewed spike in oil prices or a fresh slump in housing. The prospect of sharp government spending cuts as Congress jostles over the budget could also create some hurdles.

“Lingering high unemployment and further weakness in home prices will add to consumer caution,” Hooper said. (Editing by James Dalgleish)