June 16, 2010 / 5:15 PM / 7 years ago

U.S. double-dip recession very unlikely say economists

WASHINGTON (Reuters) - The U.S. economy is slowly healing and will avoid a relapse into recession, the American Bankers Association’s economic advisory committee said on Wednesday.

The committee, which includes the chief economists from many of the biggest U.S. banks, said Europe’s sovereign debt turmoil would inflict minimal damage on the U.S. economy, aside from trimming exports.

On average, the economists pegged real economic growth at 3.2 percent in 2010 and 3.0 percent in 2011. That was similar to the findings in a Reuters poll, also released on Wednesday.

Although that growth rate is not robust enough to repair the ailing labor market, the committee unanimously agreed that a double-dip recession was very unlikely.

“The economy is moving ahead in a lengthy rehab process and will eventually return to full health and strength,” said Stuart Hoffman, chief economist with PNC Financial Services Group and the ABA committee’s chairman.

The economists expected 2.2 million new jobs in 2010, and 2.5 million in 2011. However, that will replace only about half of the total jobs lost during the recession.

They predicted that unemployment would come down only gradually, dropping to 8.5 percent by the end of next year. It currently stands at 9.7 percent.

High unemployment and low inflation will keep the Federal Reserve’s interest rate near zero through the end of the year, they said. By June 2011, the economists thought the benchmark fed funds rate would reach 1 percent, still historically low.

As for Europe, they thought a backstop of nearly $1 trillion provided by European leaders and the International Monetary Fund would help restore confidence and contain financial market instability. While the crisis will weaken economic growth, it will also keep U.S. government and mortgage borrowing costs low, providing a benefit to the U.S. economy.

“The most notable effect on the U.S. will be lower U.S. exports globally due to a weakening European economy and a strengthening dollar,” Hoffman said.

Reporting by Emily Kaiser; Editing by Kenneth Barry

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