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US 'won't slump into recession'
08/09/2005 12:35 - (SA)
Washington - Hurricane Katrina will have a greater economic impact than previous killer storms, though the energy price spikes, slower growth and job losses will not be enough to push the country into a recession.
That's the view of the Congressional Budget Office which on Wednesday provided the government's first assessment of the economic impact from the country's worst natural disaster.
The CBO predicted the aftermath of Katrina would see job losses of 400 000 in coming months, a reduction in growth of as much as a full percentage point in the second half of this year and that September gas prices will average about 40% higher than before the storm.
These impacts were described as "significant but not overwhelming". Still, the CBO cautioned that the economy could suffer a more serious blow if energy supply disruptions along the Gulf Coast last longer than expected.
The CBO gave a ballpark estimate that gasoline prices will peak in September at about 40% higher than levels in effect in midsummer. That peak could be near, given that the average retail price of regular unleaded gasoline climbed by 46c last week to $3.07 a gallon, 34% above the July nationwide average.
The spurt in the cost of gasoline will reduce overall economic growth by 0.4% in the current July-September quarter and by 0.9% in the October-December period as consumers cut back on spending in other areas by around $38bn at an annualised rate, CBO estimated.
CBO said overall economic growth, as measured by the gross domestic product, could be reduced by between 0.5 percentage point and a full percentage point for the second half of this year but this downshift in growth should be temporary as long as gasoline prices retreat to pre-Katrina levels.
Before the hurricane, private economists were forecasting growth in the second half would come in between 3% and 4% following growth of 3.6% in the first half of this year.
The CBO said estimates of the impact on employment in September range from a decline of 150 000 jobs to a drop of as many as half a million jobs.
Some of that impact, however, will be offset in coming months, CBO said, predicting that employment growth over the final four months of this year would be 400 000, below the 600 000 to 800 000 pre-Katrina estimates for payroll job growth from September through December.
The hurricane's ultimate impact on the budget was unclear, CBO said, however it noted that Congress already has approved $10.5bn in emergency spending with more on the way.
The White House announced on Wednesday that President George Bush will ask lawmakers to approve another $51.8bn to cover the costs of federal recovery efforts.
Many private budget experts are predicting increased federal spending for Katrina will push up next year's deficit by $100bn or more, putting in jeopardy Bush's efforts to cut the deficit in half by 2009.
- AP
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