Experts lower forecasts for '96 economic growth - lack of federal budget and other economic factors affect forecast - Brief Article

Nation's Business, April, 1996

Economists have lowered their forecasts for U.S. economic growth in 1996, in part because of the continued inability of the Republican-controlled Congress and the White House to reconcile differences in their respective budget and spending plans.

Martin Regalia, vice president and chief economist of the U.S. Chamber of Commerce, says that failure to arrive at a budget accord is "a major factor," though not the only one, in his and other recently revised forecasts for a slower economy this year.

Other factors, he said in his quarterly economic forecast issued in late February, were slow action by the Federal Reserve Board in easing interest rates and the prospect that the stock market is "not expected to match last year's gains."

The Chamber lowered its expectation of 1996 growth in the gross domestic product,---the broadest measure of the nation's output of goods and services--to 1.4 percent, down from the 2.0 percent growth forecast issued in November.

The Blue Chip consensus view of 51 business and academic economists, as compiled by the Blue Chip Economic Indicators newsletter, was lowered in March to 1.9 percent, down from a 2.2 percent forecast in November.

(Both November forecasts have been revised to reflect changes in the way the GDP is computed.)

"The economy will avoid a recession this year, but only by a whisker," Regalia says.

"Aggressive easing [of interest rates] by the Federal Reserve and a positive outlook by financial markets, despite the lack of a budget deal, should just barely pull us through."

At press time, Congress and the White House were still negotiating over a stopgap spending bill to continue funding parts of the government that have been without regular appropriations for fiscal 1996, which began Oct. 1. But the president signed a short-term extension of the debt limit, which was to expire at the end of March.

As of early March, the government had partially shut down twice this fiscal year because of the inability of the president and Congress to agree on a multiyear plan to balance the budget or on the appropriate spending levels in individual government funding bills.