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White House downplays US recession

Latest update : 2008-02-12

Despite the subprime crisis, the White House maintained that the US economy was "structurally sound". George Bush is due to sign an economic stimulus plan Wednesday, valued at around $150 bn, which is expected to boost the nation's growth.

The US economy will continue growing in 2008 and avoid a recession despite a lingering housing slump and a related credit crunch, White House economists predicted Monday.

The annual "Economic Report of the President" said the world's largest economy had absorbed shocks in the past and that Congress's approval of a giant economic stimulus plan last week would help fire up growth.

"Economic growth is expected to continue in 2008. Most market forecasts suggest a slower pace in the first half of 2008, followed by strengthened growth in the second half of the year," the annual survey said.

It forecasts that US gross domestic product growth (GDP) will remain at 2.7 percent in 2008 compared with a similar assumption for 2007, and sees growth accelerating several notches to 3.0 percent in 2009.

The White House projections contrast with forecasts by some private economists, some of whom believe that the world's richest nation is on the cusp of or has already fallen into a recession.

"This report indicates that our economy is structurally sound for the long term and that we're dealing with uncertainties in the short term," President George W. Bush told reporters at the White House as he endorsed the annual assessment.

The White House report, however, cautioned that the troubles roiling the mortgage and credit markets could hamper growth.

"The contraction of the secondary market for some mortgage securities and the ensuing write-downs at major financial intermediaries are a new downside risk," the report cautioned.

White House economists said the downturn in the housing market had not spilled over into the wider economy as of the end of last year.

Bush is due to sign the economic stimulus plan, which is valued at around 150 billion dollars and includes temporary tax rebates and business incentives, into law on Wednesday.

Aside from the economic aid package, the report also underlined action taken by the US central bank to give growth a shot in the arm.

"The Federal Reserve provided liquidity and took measures to support financial stability in the financial markets in the wake of the disruptions in the credit markets," the report stated.

US growth slowed to a 0.6 percent annualized crawl in the fourth quarter compared with a blistering 4.9 percent clip in the prior quarter, despite the Fed unleashing a sustained rate-cutting campaign in September.

The central bank has slashed its key federal funds short-term interest rate to 3.00 percent in recent weeks in a bid to underpin economic momentum.

The White House assessment echoed remarks made by Treasury Secretary Henry Paulson on Saturday.

"I believe that we are going to keep growing. If you are growing, you are not in recession, right? We all know that," Paulson said after a meeting in Tokyo of finance chiefs from the Group of Seven rich nations.

The report also forecast that inflationary pressures will cool in 2008 with the consumer price index (CPI) moderating to 2.1 percent from an expected 3.9 percent in 2007. The CPI is forecast to tick up to 2.2 percent in 2009.

On the job front, the unemployment rate is anticipated to rise to 4.9 percent in 2008 and hold steady during 2009, compared with a predicted 4.6 percent for last year.

Date created : 2008-02-12