Housing, Credit Markets to Slow GDP Growth to Only 1.5% in 4Q07: Economists

Gross domestic product in the United States will advance by a mere 1.5% in the final quarter of the year, according to a survey of economists by the National Association for Business Economics.

In September, the association had pegged GDP growth at 2.5%. It was 3.9% in the second quarter. For all of 2007, NABE projects GDP growth of 2.1%, the weakest rate since 2002, when GDP growth was 1.6%, and for 2008, the association expects a GDP growth rate of 2.8%.

Sixty percent believe the risk of a recession in 2008 is 30%, and 20% believe the risk is 50% or higher. “Spillovers from housing weakness to broader consumer spending, along with credit-market tightening, are seen as the most likely recession triggers” because they could cause consumers to cut back on spending, according to the report. Economists also voiced concern about rising oil prices forcing corporations to raise prices on goods, resulting in inflation.

Ellen Hughes-Cromwick, NABE president and chief economist at Ford Motor Co., said: “While the U.S. economy faces a higher risk of recession from credit markets, housing, and energy prices, NABE’s panelists still do not see recession as the most likely outcome. Our panel of forecasters sees growth gradually picking up from the sluggish pace projected for this quarter even without further easing by the Federal Reserve,” Hughes-Cromwick added.