WASHINGTON President George W. Bush said on Monday the U.S. economy was currently facing heightened risks, but its foundation was solid and its long-term outlook was strong.
"This report indicates that our economy is structurally sound for the long-term and that we're dealing with uncertainties in the short-term," Bush told reporters after signing his annual economic report to Congress.
The report did not alter the White House forecast that the U.S. economy would grow 2.7 percent in 2008, a far rosier picture than private-sector economists who have predicted growth of just 1.6 percent this year.
Economists surveyed by the Blue Chip Economic Indicators newsletter released earlier on Monday also pegged the chances of a recession at almost 50 percent.
The White House report, however, did acknowledge the "somewhat slower-than-normal growth that began in 2007 is likely to continue in 2008."
In a rare showing of bipartisan cooperation, the Democratic-led Congress and the Republican White House hammered out a $152 billion economic stimulus package that offers tax rebates and business incentives in the hope of warding off recession.
Bush will sign the package on Wednesday and the rebate checks will likely start going out in May. "It's going to help deal with the uncertainties in this economy," Bush said.
The report also called on Congress to adopt reforms to boost refinancing in the slumping housing sector and approve free-trade agreements with Colombia, Panama and South Korea.
"Given the economy's strong basic structure, free mobility of labor, relatively low taxes, well-balanced capital markets and openness to trade, prospects for continued growth in the years ahead remain good," the report by Bush's Council of Economic Advisers said.
Even though the Federal Reserve has slashed borrowing costs to 3 percent from 5.25 percent since mid-September and boosted credit market liquidity, the latest economic indicators show that staving off a recession may be a tough challenge.
Growth slowed abruptly to a 0.6 percent annual rate in the fourth quarter, following a surge of 4.9 percent in the prior three months. Plus, for the first time in 53 months, non-farm employers cut jobs in January.
The housing sector has also continued to soften. Pending sales of previously owned homes fell by 1.5 percent in December and were off a sharp 24 percent from a year ago, the National Association of Realtors said last week.
While the report pressed Congress to pass reforms to the Federal Housing Administration and outlined private-sector efforts to modify subprime adjustable-rate mortgages, it offered no new initiatives for stressed credit markets, saying "the best course of action is often to simply allow markets to adjust."
Policies that delay necessary adjustments risk creating a "moral hazard" that encourages borrowers and lenders to make imprudent financial decisions in the future, it said.
(Editing by Neil Stempleman)