Possible U.S. Economic Rebound Predicted

AP Economics Writer

WASHINGTON – The United States, which struggled through a stop-and-go recovery last year, should see the economy steadily gain strength in 2003, say a panel of prominent economic forecasters.

But that outlook from the National Association for Business Economics comes with an important caveat — any U.S. war with Iraq ends quickly.

A panel of 37 top economists, who prepared NABE’s latest quarterly outlook, said Friday that President Bush’s call for a new round of tax cuts would provide a moderate boost to the economy this year and next.

But the forecasters said that an even bigger positive factor would be a quick resolution of the war, which would remove uncertainty that is holding back business investment plans.

“Rising tensions in the Middle East are coloring business decisions and hampering U.S. economic growth,” said NABE President Tim O’Neill, the chief economist at BMO Financial Group.

In part because of the war worries, the new NABE forecast lowered its growth forecast slightly for all of 2003, saying the gross domestic product would expand 2.7 percent this year, down from a November forecast of 2.8 percent GDP growth.

That would, however, still be an improvement over the 2.4 percent growth turned in during 2002. NABE predicted the pattern of growth would show steady improvement instead of last year’s sawtooth pattern when one quarter of strong growth was followed by a quarter of very anemic activity.

The NABE panel projected 2003 growth at rates of 2.7 percent during the current quarter, 3.2 percent in the April-June period, 3.5 percent in the third quarter and 3.8 percent for the final four months of the year.

“The NABE panel’s expectation is that resolution of the (Iraq) conflict will combine with stimulative monetary and fiscal policy to create much stronger conditions in the latter half of this year,” O’Neill said.

By the second half of the year, the jobless rate will start to come down, O’Neill said.

The NABE panel predicted even better growth of 3.6 percent in 2004 with the unemployment rate dropping from an expected average of 6 percent this year down to 5.5 percent next year, a welcome development for Bush in a year when he would be running for re-election.

A new CBS-New York Times poll said public confidence in the president’s ability to handle the economy was at the lowest level since he took office, with just 38 percent approving of his handling of the economy and 53 percent disapproving.

Six out of 10 said the state of the economy is bad, the lowest measure in this poll in a decade.

Bush and his economic team were traveling the country this week, trying to drum up support for the president’s new round of $1.3 trillion in tax cuts, including a $670 billion package of relief aimed at jump-starting growth this year.

In a speech in Florida on Thursday, the president said the measures would provide badly needed reform to a tangled federal tax code. “It really would make the tax code more fair,” the president said, seeking to counter critics who contend his proposals are too heavily weighted toward providing big tax breaks for the wealthy.

John Snow, Bush’s new treasury secretary, told a Detroit audience on Thursday that the administration had designed a package of tax cuts that would give the economy a quick boost and provide long-term benefits by spurring productivity-enhancing business investment.

“Our goal was to do something that would pay off for America long into the future,” Snow told the Detroit Economic Club.

The NABE panel said Bush’s new stimulus package would provide a modest boost in economic growth. Most of the forecasters felt the impact would add less than 0.5 percentage point to GDP growth this year, slightly more than 0.5 percentage point in 2004, and then smaller amounts going forward. Their estimates were based on a belief that Bush will be forced by Congress to accept a scaled-down plan.

The group’s economic forecast reflects an expectation that the tensions with Iraq will be resolved by the middle of this year.

However, O’Neill said the obvious downside risk to the forecast was if a war against Iraq is longer or more disruptive to global oil supplies than currently expected.

The NABE forecast predicted consumer prices would rise by a moderate 2.2 percent this year and 2.3 percent in 2004.