The U.S. economy is expected to grow at a moderate pace though the financial flare-up in Europe and fiscal issues at home present “ongoing downside risks,” according to the Economic Advisory Committee of the American Bankers Association.

The committee anticipates inflation-adjusted GDP to expand by 2.2% this year, compared to 1.6% in 2011, it announced today. 

“Although economic growth will pick up, downside risks have become more pronounced,” George Mokrzan, committee chairman and Huntington Bank chief economist, said in the announcement.

The committee, which includes 12 bank economists from among the largest banks in North America, does not foresee the economy growing rapidly enough to bring down the unemployment rate below 8% by year-end. But it does see a number of positives. For example, it anticipates consumer spending will grow at an annualized rate of 2.4% this year, driven in part by a drop in household debt, which strengthened consumer balance sheets. It also forecasts a mild recovery in the housing market.

The bank economists see the economic challenges facing Europe as a significant risk to the U.S. economy, as Europe is one of the America’s largest trading partners. They also see the nation’s looming fiscal challenges as a major risk to the U.S. economic outlook.  Businesses, they contend, may not want to take on new hiring and spending commitments with major potential tax hikes and federal spending cuts on the horizon.

The committee believes the Federal Reserve will continue to strongly support economic growth and maintain the federal funds rate between 0% and 0.25% at least throughout next year. It also forecasts strong credit growth into 2013 with business and personal loans expected to increase 11.5% and 7.4%, respectively, this year.

“The significant increase in credit growth shows that banks are doing their part to make loans that will help drive the economic recovery,” Mokrzan said.