24 January 2008

Economic Growth Decline Predicted for 2008, with Rebound in 2009

U.S. economy remains resilient, secretary of state tells Economic Forum

 

Secretary Rice, right, discusses the U.S. economy in Davos, Switzerland, with former British Prime Minister Blair. (© AP Images)

By Merle D. Kellerhals Jr.
Staff Writer

Washington -- The pace of U.S. economic growth will slow somewhat through 2008, and an economic rebound is likely to begin early in 2009 as the housing and financial sectors improve, says a Congressional Budget Office forecast.

Peter Orszag, director of the nonpartisan Congressional Budget Office (CBO), said in testimony before several congressional budget and finance committees that the current economic weakness was created by tight credit, a housing crisis and rising oil prices. The CBO provides Congress at least two economic outlook forecasts annually.

"The state of the economy is particularly uncertain at the moment. The pace of economic growth slowed in 2007, and there are strong indications that it will slacken further in 2008," Orszag said January 24 in congressional testimony.  "In CBO's view, the ongoing problems in the housing and financial markets and the high price of oil will curb spending by households and businesses this year and trim the growth of [the gross domestic product]."

A nation's gross domestic product (GDP) is the total market value of all final goods and services produced by a nation. It generally includes four components -- consumer spending, investment, government spending and exports and imports. For 2008, CBO estimates the U.S. GDP to reach approximately $13.67 trillion and will rise further to $14.2 trillion in 2009.

 

A stock broker monitors volatile trading action in London on January 23. (© AP Images)

In congressional testimony, Orszag said it is not likely the U.S. economy will worsen beyond the expected slowing in growth, but the estimate of the gross domestic product is revised throughout the year as conditions change. "CBO expects the economy to rebound after 2008, as the negative effects of the turmoil in the housing and financial markets fade," he said.

Secretary of State Condoleezza Rice, speaking January 23 at the World Economic Forum in Davos, Switzerland, said the U.S. economy remains a leading engine for global economic growth, and world markets should have confidence in the underlying strength of the global economy.

"I know that many are concerned by the recent fluctuations in U.S. financial markets, and by concerns about the U.S. economy," she said. "The U.S. economy is resilient, its structure is sound, and its long-term economic fundamentals are healthy. The United States continues to welcome foreign investment and free trade."

On January 18, President Bush announced he was asking Congress to pass a temporary economic package designed to stimulate consumer spending and business investment. He said the stimulus package would amount to about 1 percent of GDP, or between $140 billion and $145 billion, though the final amount could reach as high as $150 billion.

Treasury Secretary Henry Paulson, House Speaker Nancy Pelosi and Republican Minority Leader John Boehner announced January 24 that a deal had been struck between the White House and Congress to provide a stimulus package of tax rebates for consumers and incentives for business investment. Senate Majority Leader Harry Reid told the Reuters news agency that the bipartisan package could be sent to Bush for his signature by mid-February.

That action in fiscal policy by the president was matched by the U.S. Federal Reserve on January 22 in monetary policy when it lowered interest rates to encourage banks to lend money to businesses and stimulate investment. That action helped world stock markets rally and recover from a trading slide that began earlier.

Federal Reserve Chairman Ben Bernanke said in congressional testimony that he sees an economic stimulus package as effective in blunting recent economic turmoil as long as the stimulus package is timely, targeted and temporary.