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Last Updated: Monday, 26 February 2007, 10:36 GMT
US economic outlook 'improving'
US shoppers
Consumers are set to keep the economy on a steady course
The outlook for the US economy in 2007 has improved, research has indicated, suggesting that interest rates may stay on hold all year.

In a poll for the National Association for Business Economics, economists said they expected the economy to grow 2.7% this year, the slowest rate since 2002.

But the picture has improved since late last year - when they foresaw a 2.5% rise - as inflationary pressures ease.

They believe strong consumer spending will offset the slowing housing market.

'Soft landing'

The number of new houses being built is now forecast to fall by 15% this year, far more severe than earlier predictions of a 5% drop-off.

This would represent a significant worsening of activity in the housing sector, which has been slowing for the past year.

The economic expansion seems to be facing fewer risks today than it did when we took past surveys
Carl Tannenbaum, National Association for Business Economics

But the survey suggests that robust consumer spending will support the economy, with expenditure set to increase by 3.2% this year.

At the same time, the annual rate of inflation is expected to drop below 2% to its lowest level in five years.

The anticipated fall - to 1.9% from 3.2% in 2006 - is put down to a sharp fall in energy costs as oil prices remain well below last year's high of $78 a barrel.

Looking forward, growth of 3% is forecast for 2008, an improvement on this year but still below 2006's 3.4% figure.

"The forecast we are presenting is the picture of a soft landing," said Carl Tannenbaum, president of the National Association for Business Economics.

Mr Tannenbaum said it seemed increasingly unlikely that the Federal Reserve would have to cut interest rates this year to stoke the economy.

"The economic expansion seems to be facing fewer risks today than it did when we took past surveys," he added.

"The drop in risks plus the moderation in inflation will allow the Fed to stay on hold."




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