Economists raise forecast for US economic growth despite Katrina

A group of business economists on Monday boosted their forecast slightly for US economic growth pace this year despite Hurricane Katrina and high energy costs.

In its latest survey, the National Association of Business Economists (NABE) raised their average forecast for US gross domestic product growth for the full year 2005 to 3.5 percent from 3.4 percent in a prior survey in May.

Stuart Hoffman, the incoming NABE president said that the NABE economists see a relatively modest and short-lived negative impact on the national economy.

The economists predict economic growth to reduce by 0.4 percentage point in the third quarter and 0.2 point in the fourth quarter as a result of the Katrina devastation. The economy is expected to advance by 3.4 percent for 2006.

According to the economists, consumer prices are expected to rise 3.5 percent in the fourth quarter on a year-on-year basis, up from 2.8 percent reported in the May survey.

They say that core inflation will be 2.3 percent this year. US trade deficit will decline to 629 billion dollars from 662 billion dollars. They also see growth in US personal and government spending for both 2005 and 2006.

Meanwhile, the economists expect the federal funds rate, interest commercial banks charge each other on overnight loans, to be at 4.0 percent by the end of this year and 4.5 percent by the end of 2006. The key short-term rate is currently 3.75 percent.

As for the impact on the US economy caused by Hurricanes Katrina and Rita, Bush's top economist said Sunday that the economy would weather the double blow and that the fallout would be temporary.

"So far, the effects appear to be relatively modest on growth,"said Ben Bernanke, chairman of the White House Council of Economic Advisers, in a speech to the Institute of International Finance.

Source: Xinhua