Slow Recovery, Drop in Interest Rates Predicted : Economy: Analysts say growth will not exceed 3%, with little inflation. Job creation will be modest.

The economic recovery will proceed at a sluggish pace through the end of 1994, keeping inflation in check and opening the door to additional interest rate reductions, a group of leading private-sector economists predicted Wednesday.

The defeat of President Clinton’s stimulus package and growing skepticism about his deficit reduction plan suggest that economic growth will not exceed 2.8% to 3% and job creation will remain modest, according to the National Assn. of Business Economists.

In its quarterly assessment of economic conditions, the group said it revised down its growth forecast in 1993 from 3.1% to 2.8% after a government report that the economy grew at an annual rate of only 1.8% during the first quarter.

“The first quarter was substantially below our forecasts, but for the year there are only very modest changes,” said Joseph W. Duncan, president of the association. “The lower forecast can be explained in part by the loss of the stimulus package.”

Revising their earlier forecasts, the association predicted that interest rates will fall in the months ahead as the slow-paced recovery opens the door to additional easing by the Federal Reserve Board and reassures the bond market that inflation will remain moderate.

The economists had predicted in their last report that yields on 90-day Treasury bills would rise to 3.9% by March, 1994, but their estimate was revised down to 3.5%, a relatively modest gain from the current level of 3.1%.

More significantly, they predicted that the rate on 30-year government bonds would decline through the end of this year and rebound in early 1994 to its current rate of 7.0%.

The group’s previous survey had estimated that long-term rates would rise to 7.7% by next year.

The economists also broke away from a growing sentiment in the financial community that inflation will return, predicting that it will remain in check at 3.2% for the rest of 1993 and 3.4% for 1994.

Fueled by government reports of unexpectedly high increases in the consumer and producer price indexes in April, the markets have expressed serious concern about inflation.

The lower than expected interest rates and steady inflation will do little to help the economy, the analysts said, affecting only “interest-sensitive” spending, such as auto sales and housing starts.