- The Washington Times - Sunday, May 22, 2005


The yawning U.S. trade deficit probably will weigh down economic growth this year, economists say.

The economy, as measured by gross domestic product (GDP), is projected to expand by 3.4 percent in 2005, compared with an earlier estimate of 3.6 percent, according to the latest outlook from the National Association for Business Economics.

The lower forecast mostly reflects economists’ fears that the trade picture will worsen. The U.S. trade deficit, which ballooned to a record $617 billion last year, is a politically sensitive subject for the Bush administration.

“Virtually the entire reduction in the panel’s estimate of GDP growth in 2005 was due to a much deeper projected trade deficit of $662 billion this year,” said Carl Tannenbaum, who oversaw the survey.

If the projections being released today proved accurate, they would mark a slowing in growth from the 4.4 percent increase in GDP in 2004. That was the strongest showing in five years.

GDP, which measures the value of all goods and services produced in the United States, is considered the broadest barometer of the economy.

If the economy did grow by 3.4 percent this year as the association projects, it would be a respectable performance.

“Our panelists still think the economy is doing fine,” said Mr. Tannenbaum, chief economist at LaSalle Bank.

The pace of growth also should be sufficient to bring about improvements in the job market. Forecasters anticipate that the unemployment rate, which averaged 5.5 percent last year, will dip to 5.2 percent this year.

On the inflation front, consumer prices are expected to rise this year by 2.8 percent, compared with a previous forecast of 2.2 percent.

One of the main reasons for the higher estimate is that economists think oil prices will hover at about $46 per barrel this year, compared with an earlier estimate of about $40, Mr. Tannenbaum said.

Last year, consumer prices rose 3.3 percent, the most since 2000. To keep inflation in check, the Federal Reserve probably will continue pushing short-term interest rates higher this year, the economists said.

Federal Reserve Chairman Alan Greenspan and his colleagues have raised rates eight times since last year. Each increase has come in increments of one-quarter of a percentage point. That has put the federal funds rate — the interest that banks charge each other on overnight loans — at 3 percent. The funds rate should climb to 4 percent by the end of this year, the forecasters said.

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