Economic Growth rate in 2005 projected to dip in U.S.

23-May-05

GDP, which measures the value of all goods and services produced in a country, is considered the broadest barometer of an economy. The economy of U.S is projected to expand by 3.4% in 2005 compared to the earlier estimate of 3.6%. This indicates a slowing in growth from the 4.4% increase in GDP in 2004. The lower forecast reflects economists' beliefs that the trade deficit will restrict growth. The lower forecast strengthens expert beliefs that the trade picture will worsen. The U.S. trade deficit, which ballooned to a record $617 billion in 2004, is estimated to rise to US$662 billion in 2005. It is forecasted that unemployment rate, which averaged 5.5% in 2004, will dip to 5.2% this year due to the slow growth rate. Consumer prices are also expected to rise this year by 2.8% compared to a previous forecast of 2.2%. One of the main reasons for the estimated increase in inflation is that economists' believe oil prices will hover around US$46 a barrel this year, compared with an earlier estimate of about US$40 a barrel. To keep inflation in check, the Federal Reserve will probably continue to push short-term interest rates - already raised 8 times since last year - higher. Each increase has come in increments of one-quarter of a percentage point, pegging the federal funds rate - the interest that banks charge each other on overnight loans - at 3%. The funds rate, which is the Fed's main lever to influence economic activity, is forecast to climb to 4% by the end of this year.