WASHINGTON – The U.S. economy looks set to log anemic growth this quarter and faces a "slow slog" through the winter months, according to a closely watched survey of economists released Tuesday.
The economy should manage to sidestep a renewed recession, helped by a half-percentage-point cut in interest rates from the Federal Reserve earlier this month, said economists surveyed by the National Association for Business Economics.
Political tensions linked with the Middle East — including possible new attacks or a potential U.S. conflict with Iraq — pose the greatest hazard to the economic outlook, according to one-third of the 33 analysts polled.
"Unresolved economic problems, specifically a hangover from the late 1990s investment bubble plus the need for families to rebuild their savings, are likely to keep U.S. growth below a 3 percent rate through the first quarter of 2003," NABE President Tim O'Neill said in a statement.
"Inflation risks remain minimal," O'Neill, who is also the chief economist for the BMO Financial Group, added.
The survey said growing evidence that the economy lost momentum in late summer led analysts in the survey to trim growth expectations for the final three months of this year.
Economists now expect gross domestic product to grow at a rate of just 1.4 percent in the fourth quarter, versus an expansion rate of 2.7 percent predicted for the same period in the survey two months ago.
The economy grew at an annual rate of 3.1 percent in the third quarter, according to the first estimate from the Commerce Department released at the end of October. A new estimate was expected later on Tuesday.
Nor will the new year start off with a bang. Economists in the survey said first quarter GDP growth should come in at 2.5 percent, down from a prior forecast of 3.3 percent.
The survey was conducted between Nov. 6 and 14.
Helped by the Fed's rate cut — which most economists thought was a reasonable step given the economic realities — the economy should grow about 3 percent in the full year 2003.
Renewed growth among major U.S. trading partners, led by Mexico, Canada and Europe, should also spur the U.S. economy.
Some 76 percent of the economists polled predicted faster growth in Mexico next year, while 61 percent saw the same for Europe. Fully 58 percent were confident about Canada's prospects for accelerated growth in the new year.
Questions remained about Japan's growth prospects, with 33 percent seeing acceleration in the world's No. 2 economy, 39 percent seeing the status quo and 21 percent forecasting slower growth for the country.
Japan has been caught in a vicious deflationary spiral and has suffered recurring recessions for many years.
While few of those polled thought the equity bear market was a major risk to growth, concerns about a sudden consumer retrenchment surfaced in the current survey.
"Just over 18 percent thought the factor most likely to derail their expectations for 2003 was the possibility that 'consumers suddenly retrench.' That's higher odds than our panel gives the risk of more terrorism," NABE said, adding that consumer behavior will bear watching as the recovery heads into the new year.