WASHINGTON, Feb 22 (AFP) - The world's biggest economy is poised to "motor ahead" during 2005 and largely ride out some likely "potholes" presented by twin deficits, but fresh interest rate hikes loom on the road ahead, a panel of top US business economists said Tuesday.
US gross domestic product (GDP) -- total economic output -- was forecast to grow 3.6 percent in 2005, albeit at a slower pace than the 4.4 percent expansion notched up in 2004, said a National Association of Business Economists (NABE) panel.
"Our forecasters expect the economy to motor ahead at a solid pace, despite potential potholes presented by our twin deficts," said Carl Tannenbaum, chairman of the NABE Outlook Survey and chief economist at LaSalle Bank in Chicago.
"While the fiscal and trade issues that face the country could have a significant impact in the long run, they do not appear to be hindering our short-term economic performance," Tannenbaum observed.
The panel of 37 top business economists expects the US budget defict to fall to 386 billion dollars in fiscal year 2005 compared to 2004's projected 412 billion.
On the trade front, "a further deterioration" is expected and imports are seen exceeding exports "by a record-breaking 615 billion in 2005."
Rising interest rates, geopolitical uncertainty and "corporate caution" were cited as "hindrances" that could affect the country's economic engine.
The panel expects the Federal Reserve to raise its key federal funds rate -- the main rate used for interbank loans -- to 3.5 percent by year-end 2005 from its current pegging of 2.5 percent.
The expected fresh rate hikes are seen applying a slight brake to home sales.
"Housing starts are expected to decline from 2004's sizzling 1.9 million level to a still respectable 1.8 million in 2005," the top economists predicted.
Weighing the economic positives against the negatives, the NABE economists cited an improving labor market and accomodative monetary policy and fiscal policies as boosting their outlook.
The US unemployment rate is projected to average 5.2 percent during 2005.
On the currency front, the NABE outlook called for the dollar to "stablize" against the euro at 1.30 dollars.
Demand for the greenback is likely to remain supported by "strong demand" for US assets by overseas investors, the NABE panel added.
02/22/2005 05:11 GMT - AFP