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US Bankers: Recovery Remains Fragile - 2002-06-19

The association representing America's commercial banks Wednesday released a cautiously optimistic economic forecast. The bankers see U.S. growth in the range of 3 to 4 percent this year.

The bankers identify several risks to the recovery from recession that probably began late last year. They include weak corporate profits, an expanding government budget deficit, the declining value of the dollar and possible acts of terrorism.

Gregory Miller, chief economist at Sun Bank in Atlanta, says this is a weaker than usual economic recovery. "Typically, when an economy recovers from recession, you get very large rebound numbers," he explained. "You get growth rates in the first three to six months of recovery of 6, 7, sometimes 8 percent. So what we have right now is a relatively moderate rebound."

According to Mr. Miller, the chairman of the association's economic advisory committee, the weak recovery may be the result of the slowdown itself having been modest.

The bankers expect the dollar to weaken further, falling to 96 cents to the euro (from the current 94 cents).

Mr. Miller notes corporate chief executives are keeping their eyes on consumer spending, worrying about the durability of the recovery. "CEOs are reticent," he said. "And that makes the timing of new capital spending, which requires bank loans to fund it, one of the dicey risks in our forecast."

The American Bankers Association expects the central bank to begin to raise short-term interest rates by the end of this year. Currently, interest rates are at a 40-year low.