Economists Increase Growth Projections

The U.S. economy will gain strength in the second half and keep accelerating into 2004 when it will expand by the most in four years, a survey of economists showed Monday.

U.S. gross domestic product will rise at a 3.7% pace in the current quarter and at a 3.8% rate in the final three months, according to the average forecast of 54 economists surveyed Aug. 4 to 5 by Blue Chip Economic Indicators of Kansas City, Mo. In the last survey, economists had expected a 3.6% increase in third-quarter growth.

Economists raised third-quarter estimates because the Federal Reserve’s benchmark overnight bank lending rate is at a 45-year low, corporate profits have risen five quarters for Standard & Poor’s 500 companies, and the government has cut taxes.

“Expectations remain high that the U.S. economy is finally poised to post sustainable real GDP growth,” the Blue Chip report said. “A flurry of recent statistical reports and private-sector surveys has reinforced earlier signs that the expansion began to strengthen as the second quarter came to an end.”

The economy will expand 3.7% next year after a 2.3% gain this year, according to the average Blue Chip forecast. GDP grew at a 1.9% annual rate in the first half of this year, as industrial production and consumer confidence dropped during the Iraq war.

The U.S. is expected to continue to outperform Europe and Japan. The euro-area economy, the world’s second-biggest after the U.S., will expand 1.9% next year after growing 0.6% this year, the forecasters said. Japan, the world’s third-largest economy, will expand 0.9% this year and 1.1% in 2004, they said.

China will lead the world’s major economies with growth of 7.5% in 2004 after a gain of 7.4% this year, the panel estimated. Growth elsewhere in Asia is expected to surge. The Singapore economy will expand 4.8% after this year’s 1.4% gain, the survey said.