Slower U.S. growth forecast

Press, 2 August 1985, Page 23

Slower U.S. growth forecast

NZPA-AP Washington The Administration of President Ronald Reagan has officially lowered its prediction for United States economic growth in 1985, but insists that a sharp rebound in economic activity will occur during the second half of the financial year. However, private economists called the Reagan Administration’s revised forecasts still far too optimistic, given the country’s soaring foreign trade deficit. The new Administration forecast calls for growth, as measured by the gross national production, of 3 per cent this year — down from an April projection of 3.9 per cent. The downward revision

has been expected for some time because G.N.P. grew at an annual rate of only 1 per cent from January through June, far below expectations last December. To achieve the new forecast of 3 per cent growth from the fourth quarter of 1984 through the fourth quarter of 1985, the economy will still have to pick up considerably, expanding at an annual rate of 5 per cent in coming months, five times the recent growth level. Many private forecasters, while predicting some rebound in the second half of the year, expect only about half that increase. The main weakness, as they see it, will be continued strains in the United States manufacturing sec-

tor, which has lost sales both at home and abroad to foreign competition because of the high value of the dollar. Mr W. Beryl Sprinkel, chairman of the President’s council of economic advisers, defended the Reagan Administration forecast, contending that such things as recent strong advances in the stock market should bolster optimism about the future. “There are always risks in forecasts,” he said. “What you want to be certain of is to get the order of magnitude and the direction. I am very confident about the order of magnitude and the direction of change.” A big part of the rebound would come from businesses refilling empty shelves in

coming months in order to meet continued strong consumer demand, Mr Sprinkel said. In addition, he said, a surge in money supply growth in the first half of the year would begin to show up as increased economic activity. But many private forecasters expect growth this year will be a weak 2 per cent to 2.5 per cent as gains in coming months will not be enough to offset the sluggish first half. “You would have to get a real boom going to see the kind of numbers the Administration is forecasting,” said Mr David Cross, senior economist at Chase Econometrics.