White House Sees Brief, Mild Recession--if War Ends Quickly : Economy: Forecast expects slump to end by summer, with 0.9% growth for year. But the Administration’s outlook relies on optimistic assumptions.

The White House is predicting that the current recession will be short and mild, with a modest recovery beginning in the second half of 1991--as long as the Persian Gulf War ends quickly. But, even President Bush’s economists concede that it may not turn out that way.

The forecast published Monday as part of the President’s fiscal 1992 budget proposal projects that the economy will grow by just 0.9% for all of calendar 1991, after a year of no growth in 1990.

Michael J. Boskin, President Bush’s chief economic adviser, says that he expects the recession to end by the summer, following sharp declines in the nation’s output of goods and services in the fourth quarter of 1990 and the first quarter of this year.

But the forecast still relies on a number of optimistic assumptions for which private economic analysts see little justification so far.

Although the Administration argues that one reason the recession will be brief is that the economy was not overheated when it entered the slump last summer, most private analysts argue that real estate and banking were overextended then--and unable to protect themselves.

At the same time, a wide range of corporations were deep in debt as a result of the junk bond mania that took hold in the 1980s, resulting in a surge in the number of major bankruptcies so far this year.

The Administration also is counting on a quick resolution of the Gulf War, which would enable the nation to avoid yet another oil price shock. But the war is now three weeks old and officials no longer are willing to predict just how long it might take to defeat Iraq.

Finally, the White House predicts that the rapid decline in interest rates in recent weeks will spark a recovery in the real estate market and the auto industry. But housing and manufacturing have shown no signs of responding to the stimulus of lower rates.

With so much uncertainty facing the economy, Boskin acknowledged Monday that the forecast may turn out to be wide of the mark. “Alternative paths for the economy, either better or worse than that used for the projection, are entirely possible,” he said.

As a result, the White House provided a series of “alternative” forecasts that could either increase or decrease the size of the deficit in 1992.

In one, a more pessimistic outlook based on a worsening of the banking industry’s problems and an intensification of the credit crunch, the economy’s output would decline by 1.3% in 1991, and the budget deficit could grow by another $40.4 billion.

By contrast, a fast rebound in consumer confidence, combined with a surge in exports as a result of a decline in the value of the dollar, could translate into a growth rate of 1.3%, with the deficit some $6.9 billion lower than in the basic forecast.

The current forecast predicts that the nation’s unemployment rate will reach 6.75% this year, up from January’s rate of 6.2%, but the White House said that it does not believe joblessness will begin to decline again until 1992, when the recovery gathers steam.

It also predicts that the gross national product, the output of goods and services, will grow by 3.6% after inflation next year.

Surprisingly, the Administration’s economic forecast was slightly more pessimistic than the one released in January by the Congressional Budget Office. Traditionally, the CBO forecast has been viewed as providing more reliable and objective economic predictions.

In discussing the economic situation Monday, the White House blamed the dampening effect of the war in the Persian Gulf and the tight money and credit policies of the Federal Reserve--exacerbated by a pullback in bank lending--for causing the current recession.

The Fed recently has been easing its monetary policy by pushing interest rates down sharply. On Friday, the central bank reduced its key discount rate--the interest it charges on loans to member banks--to 6% from 6.5%.