Free-trade policies making it easier for U.S. companies to sell their products around the globe are an important ingredient to the economy's vitality, President Bush said Monday as he projected another year of good — though somewhat slower — economic growth.

Bush, in his annual economic report to Congress, made a fresh pitch for breaking down trade barriers and energizing global trade talks. He called on Congress to extend his authority to negotiate free-trade deals, a request that likely will face an uphill battle in the Democrat-controlled Congress.

"This authority is essential to completing good trade agreements," Bush wrote in the introduction to the report. "The Congress must renew it if we are to improve our competitiveness in the global economy."

With the United States racking up record trade deficits and facing intense competition from rapidly growing China and India, global trade tensions have intensified.

Democrats blame Bush's free-trade policies for contributing to the trade deficit, costing U.S. factories jobs and exposing U.S. workers to unfair competition from low-wage countries.

Against that backdrop, Bush faces a daunting challenge in getting Congress to renew the Trade Promotion Authority, also known as fast-track authority. It lets the president negotiate trade deals that Congress must approve without amendments. That authority expires on July 1.

The Bush administration argues that the way to deal with the trade deficit is to through free-trade policies that make it easier for U.S. companies to do business abroad. Getting China to move to a more flexible currency system, another administration goal, also would help U.S. exporters.

Critics contend that China is keeping its currency artificially low, giving Chinese companies a big trade advantage over U.S. companies. The United States has a record $202 billion trade deficit with China alone, the greatest ever with a single country.

Irked by China's currency and trade policies, some Democrats and Republicans in Congress want to impose hefty tariffs on Chinese made goods flowing into the United States.

On other matters, Bush talked about restraining growth in Medicare and Medicaid and the need to financially shore up Social Security as a wave of retiring baby boomers will place massive strains on the government's resources.

And, he promoted his plan to balance the budget while not raising taxes.

Bush, in a budget plan sent to Congress last week, proposed balancing the budget by 2012, three years after he has left office. That would be done by spending restraints. Bush's plan would make his first-term tax cuts permanent, which the administration says is key to maintaining economic growth.

Democrats, now in control of Congress, charged that the president's budget plan works only on paper and that it is based on overly optimistic assumptions about how much revenue the economy will generate and leaves out expensive items, such as further war costs after 2009.

"Our economy is on the move and we can keep it that way by continuing to pursue sound economic policy based on free-market principles," Bush said.

Looking back on last year, Bush said the economy turned in a solid performance despite the ill effects of the residential real estate bust.

The economy grew by 3.4 percent last year, as measured by gross domestic product from the fourth quarter of 2005 to the fourth quarter of 2006.

The president's report projects that economic growth will slow to 2.9 percent this year, reflecting lingering fallout from the housing slump. Next year growth will pick up, with the economy expanding by 3.1 percent.

"The economy is projected to settle into a steady state," according to the report.

The nation's unemployment rate, which averaged a six-year low of 4.6 percent in 2006, should hold steady at that rate this year and then edge up to 4.8 percent in 2008, the White House estimates.

Inflation, as measured by the Consumer Price Index, is expected to edge up 2.6 percent both this year and next. Last year, consumer prices rose by 2.5 percent, the smallest increase in three years. The improvement came as once-surging energy prices calmed down.