Modest U.S. growth prospects riddled with risks: bank economists

June 8, 2012

Despite all the flashing yellow signs in the global economy, banking sector forecasters are sticking – if a bit uneasily – to their modestly optimistic outlook. Still, a group of economists from the American Bankers Association, a banking lobby that presented its latest economic projections to Federal Reserve officials this week, highlighted plenty of risks. Chief among them were financial contagion from Europe and sharp fiscal adjustments in the United States.

They see U.S. gross domestic product expanding at a pretty subdued 2.2 percent this year, and then slowing to 2 percent in 2013. The forecast assumes that Europe will come to some sort of resolution that puts a floor under its troubled debt markets. Even so, the ABA committee saw a 55 percent chance that one or more countries would exit the euro, with Greece topping the list.

At a press conference on Friday presenting the group ‘s findings, George Mokrzan, chair of the committee and economist at Huntington Bancorporation in Columbus, Ohio, said one worrisome factor for the U.S. economy  was the lack of income growth for most American workers. He said this could crimp consumer spending, which accounts for the vast bulk of U.S. economic activity.

“That could become an issue if there are other shocks to the economy,” he said.

Even if growth does muddle along, it will not be fast enough to substantially bring down unemployment, currently at 8.2 percent.

Although economic growth will pick up, downside risks have become more pronounced. Our consensus forecast is that the economy isn’t growing rapidly enough to push the unemployment rate below 8 percent before year end.

The ABA economists, most of whom work at some of the nation’s largest banks, do not expect the Federal Reserve to embark on a new program of bond buying despite recent signs of weakness in the U.S. labor market. But they did argue that the Fed’s policy of ultra low rates has provided crucial support to consumers’ personal finances. Said Mokrzan:  “Low rates are helping consumers make progress in improving their balance sheets.”

For some background on the American Bankers Association, here is how the Center for Responsive Politics describes the group, which it classifies as a “heavy hitter” of the lobbying world:

The American Bankers Association represents banks of all types and sizes, including regional banks, holding companies and savings associations. One of the most powerful lobbying groups on Capitol Hill, the association regularly presses Congress for regulatory relief and industry tax breaks.

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