Washington: Despite US President Barack Obama’s warnings that the US economy will get worse before it starts improving, the White House offered on Thursday a rosier outlook for the economy than most private forecasts.
With the $787 billion economic stimulus package pouring money into the struggling economy, Obama’s first forecast since taking office predicted that the economy will shrink 1.2% in 2009 before growing again by 3.2% in 2010.
While Obama’s $3.55 trillion budget offered a gloomy outlook, the economic forecast appeared to be a little silver lining as he tries to balance being forthright about the future while not causing further damage to confidence in the US economy.
The forecast is more optimistic than projections by most economists surveyed by the Blue Chip Economic Indicators newsletter just before the stimulus plan was approved. They forecast economic output would contract 1.9% in 2009 before growing 2.1% next year.
White House officials defended their projections saying that private economists may not have fully accounted for the economic stimulus package and recent efforts to jumpstart the moribund housing market.
“We’re a little less pessimistic than some forecasts but I think the crucial thing is we’re very much in the same ballpark,” said Christina Romer, chairman of the White House Council of Economic Advisers. “It was an honest forecast.”
The Blue Chip forecast from 10 February said the expected steep drop in GDP was a result a significant decline in inventories and continued softness in personal consumption, capital spending and home the ailing residential real estate market.
“The situation is deteriorating almost daily,” said Nigel Gault, an economist at IHS Global Insight. “They clearly do have an economic backdrop to their budget that is too optimistic.”
Gault said that the White House forecast was probably too optimistic because at a certain point they had to lock in the number and could not adjust it as economic conditions have worsened in recent days and weeks.
“I reject the premise that we’re noticeably rosier,” Romer said.
Obama’s optimistic economic outlook extended beyond gross domestic product. His forecast for inflation and unemployment were also better than private forecasts.
Even as the Labor Department on Thursday reported the highest number of new people applying for weekly jobless benefits since 1982, Obama’s budget forecast that unemployment would reach 8.1% this year and 7.9% next year before falling lower.
Obama has said he expects the economic stimulus package to save or create some 3.5 million jobs over two years. The Blue Chip forecast projected unemployment would hit 8.3% this year and 8.7% next year.
“It takes a while to turn unemployment around, first you have to start growing again,” Gault said.
The Obama administration also forecast that consumer prices would fall by 0.6% this year before going up 1.6% in 2010. The Blue Chip forecast found that prices would probably decline 0.8% this year and rise 1.8% in 2010.