Group Fears Unchecked Federal Deficits : Economists Worry About a Recession

The economy will gain strength in coming months, but unchecked federal budget deficits could push the nation into another recession by next year, a group of business economists predicted Monday.

The National Assn. of Business Economists predicted that the sluggish growth that plagued the nation in the first half of 1985 will give way to quicker activity but at nowhere near the pace being predicted by the Reagan Administration.

The latest survey of 350 economists found that 52% of them expect the next recession to begin before the end of 1986.

Down From Earlier Survey

Kathleen Cooper, vice president of the association, said this was down from a survey a year ago in which 87% of the economists were predicting a recession by the end of 1986.

She said many analysts believed that weak growth in the past year had helped the economy make adjustments that would extend the current recovery, which is now almost three years old.

The economists predicted that the economy would expand this year at a weak 2.2% rate, rebounding only slightly to 2.7% growth in 1986.

While this would represent an improvement from the anemic 1.1% growth rate turned in during the first six months of the year, it would be far below the Administration’s forecast of 3% growth this year and 4% growth in 1986.

The economists said much of their pessimism stems from the belief that not enough has been done to reduce federal budget deficits, which they project will still top $200 billion next year, compared to the Administration estimate of a $178-billion deficit in fiscal 1986.

“Our seemingly age-old message to Congress is to reduce government spending and budget deficits on a long-term basis or the results will come home to roost,” Cooper said.

Inflation to Rise

The survey, released at the association’s annual convention in Denver, also found:

- Inflation will rise by 3.8% this year and a slightly higher 4.4% rate in 1986. This is in line with Administration forecasts.

- Unemployment will average 7.3% this year but climb slightly to 7.4% next year. The Administration predicts further declines in unemployment to 6.8% next year from the current 7% rate.

- The prime rate, currently at 9.5%, will not show much change through 1986, rising only moderately to 10% by the end of the year.

On other policy questions, the survey found that only 26% of the economists expected a major tax overhaul proposal to become law this year, and only 22% supported a constitutional amendment to balance the budget.