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WASHINGTON - The odds of a US recession stand at nearly 50 per cent amid a spate of data showing a weakening labour market, signs of more credit tightening and turmoil in the financial markets, the latest Blue Chip Economic forecast is projecting.
A month ago, economists in this closely watched forecast put the chance the world's richest economy would fall into recession at 40 per cent, but government data showing a contraction in hiring, slowed consumer spending and other reports pointing to sagging business activity have indicated a much more deteriorated outlook.
Among those economists, slightly more than 20 per cent are now expecting to see the economy contract in at least one or two quarters.
"The economic malaise that originated in the housing sector during 2006 (and) spread to the financial market in 2007, now appears to be infecting Main Street," the newsletter wrote.
And even as the economy slows, inflation is expected to creep higher.
The majority of those surveyed between Feb 5 and 6, however, continue to say a recession will be avoided. But growth is going to be weak.
Economists are now projecting the economy will grow by just 1.7 per cent in all of 2008, down from the 2.2 per cent forecast a month ago.
To help avert a recession, Blue Chip economists are expecting the Federal Reserve will continue cutting interest rates. They expect the central bank will reduce its target federal funds rate by at least half a percentage point more this year.
- REUTERS