2008 growth at near-recession level: SF Fed

CHICAGO (Reuters) - The U.S. economy in 2008 will grow at near-recessionary levels, bruised by the continued housing slump and weak job market, said an economist with the San Francisco Federal Reserve Bank.

"While we are not predicting a recession, the expected pace of real GDP growth over the next year is not a lot higher than what one might get in a mild recession," Bharat Trehan, research advisor at the San Francisco Fed, said in the bank's latest "FedViews" newsletter.

GDP growth is likely to be about 1 percent in each of the first two quarters of 2008 before increasing to about 2 percent by the fourth quarter, according to the bank's forecasts.

"The low growth rates we are projecting over the first half of this year mean that the economy is particularly susceptible to shocks over this period," Trehan said.

There seems to be no immediate relief from problems in the housing sector that "for some time now" have suggested that the economy is facing a recession, he said.

In turn, the negative wealth effects created by the U.S. housing market crash "will restrain consumption this year and continue into 2009."

Weakness in the labor market revealed by the government's December payrolls report would likely be another constraint on future consumption growth and the economic outlook more generally, Trehan added.

Recent developments in the financial markets as well as the high price of oil added to the momentum to revise down the bank's growth forecasts for 2008.

Trehan said as the Fed focuses on stabilizing output there was some risk of a "scaled-down replay" of the rising inflation that followed the 1970s energy shocks. "We don't think such an outcome is likely, though," he added.

Inflation expectations still appear contained, productivity growth is "reasonably healthy" and the slack now developing in the labor market should put downward pressure on inflation, Trehan said.