US banks see moderate economic growth with risks

June 9th, 2012 - 1:15 pm ICT by IANS  

Washington, June 9 (IANS) The US economy will continue to grow at a moderate pace, with ongoing downside risks from Europe and the looming “fiscal cliff”, said the American Bankers Association (ABA).

The banking industry group Friday expected the US inflation-adjusted GDP will expand by 2.2 percent this year, compared to 1.6 percent in 2011.

“Although economic growth will pick up, downside risks have become more pronounced,” said George Mokrzan, chairman of ABA’s Economic Advisory Committee, which includes 12 bank economists from Wells Fargo, Bank of America, JPMorgan Chase, Deutsche Bank and some other large banks in North America.

Mokrzan added: “The economy isn’t growing rapidly enough to push the unemployment rate below eight percent by year-end.”

The committee forecast consumer spending, which represents 70 percent of the US economy, will grow at an annualized rate of 2.4 percent this year and auto sales will exceed 14.5 million units this year, another positive sign, reported Xinhua.

A mild recovery in the housing market was expected. The panel foresaw a rebound in real residential investment spending, growing at a 10.4 percent pace for 2012. However, housing prices were stabilizing at depressed levels. And with record-low mortgage rates, the committee forecasts a rise in new and existing home sales.

The economic challenges facing Europe was a “significant risk” to the US economy, said the bank economists. Europe’s crisis was believed to have a broad negative effect, including falling sales for US companies, spill-over effect through financial market and credit vacuum as bankers panic.

Another major risk to the US economic outlook was with continuing fiscal challenges, because firms may not want to take on new hiring and spending commitments with major potential tax hikes and federal spending cuts looming.

The committee felt the monetary policy will continue to strongly support economic growth for the foreseeable future. With inflation holding near two percent, the bank economists believed that the Federal Reserve will maintain the target range for the federal funds rate between zero percent and 0.25 percent at least throughout next year.

As a result, loans to businesses were expected to grow 11.5 percent this year and loans to individuals were likely to increase 7.4 percent, said the ABA, which represents the US $14 trillion banking industry.

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