California's economy, which doubles that of Russia, will slow this year because of a stagnant housing market and mortgage foreclosures, economists predicted Monday.

Economists at the University of California in Los Angeles (UCLA) are forecasting real gross domestic product growth to be 2.1 percent, 1.7 percent and 2.5 percent in the first, second and third quarters respectively in the coming fiscal year.

"We are still forecasting a significant slowing of the California economy in 2007, as the double whammy from construction and mortgage finance creates drag on the rest of the economy," UCLA economist Ryan Ratcliff said in the forecast.

The housing market in California will be stagnant for some time because of a surge in mortgage defaults and an "implosion" of the subprime mortgage market, according to the forecast.

The largest increase in mortgage defaults was seen in the East Bay and Sacramento areas and Bakersfield, Ventura and Riverside counties.

Economists attribute that trend to the fact that first-time homebuyers are moving into more affordable areas, and builders in those areas have placed an emphasis on moving inventory quickly, thus stretching lending standards to close a deal.

In 2006, the construction market lost 2,700 jobs. Those losses are expected to continue this year.

"We expect to see job growth in California slow to below one percent through the middle of 2008, with growth in real personal income and real taxable sales slowing to the low 2 percent through this period," said Ratcliff.

In many ways, the national economy is a "mirror image" to 2000, according to the forecast. Seven years ago, the corporate sector was overextended in the aftermath of the dot-com boom, while consumer and housing credit were in good shape.

Now, the housing credit is in trouble while the corporate sector has a healthy cash flow.

Source: Xinhua