White House Sees 3.5% Economic Growth : Sprinkel Denies Administration’s Final Forecast Is ‘Too Rosy’

The Reagan Administration, in its final economic forecast, issued an optimistic outlook today predicting that the economy will grow at a robust 3.5% annual rate next year.

The prediction for growth in the gross national product, which measures the total output of goods and services, is 1.3 percentage points higher than the consensus view of many private economists.

Many private analysts are looking for growth to be very sluggish next year, with the GNP expanding at a rate of 2.2%.

If the private forecasts are correct and the Administration is wrong, it will mean that the budget headaches facing President-elect George Bush will worsen in his first year in office.

He will be forced to trim even more from government programs in order to make up for less revenue from slower economic activity.

Forecast Defended

However, Beryl Sprinkel, chairman of President Reagan’s Council of Economic Advisers, defended the forecast, which will provide the basis for formulating Reagan’s last budget submission to Congress in early January.

“I don’t want to be accused of making the final forecast of the Reagan presidency too rosy,” Sprinkel said.

He said the drought had held back growth in 1988, but with its effects no longer being felt on farm production, growth will look better in 1989.

However, Sprinkel conceded that many private forecasters had taken these factors into account in making their much lower estimates.

Blue Chip Economic Indicators, which surveys 51 top economists each month, puts the consensus forecast for GNP growth next year at 2.2%. The Administration projects that growth for 1988 will come in at 2.6%, when measured from the fourth quarter of 1987.

Other Predictions

In other predictions, the Administration forecast that inflationary pressures will abate next year and the consumer price index will climb by 3.7%, down from an expected 4.3% rise this year. By contrast, many private forecasters expect inflation to worsen next year, rising above 5%.

The Administration was also optimistic on interest rates, expecting three-month Treasury bills, which on Monday shot up to their highest levels in more than three years, to begin coming down in 1989, averaging 6.3% for the year.

The Administration’s interest forecasts play a key role in determining projections on how much the government will have to pay to finance the $2.6-trillion national debt.