U.S. economic growth on solid track, risks exist
www.chinaview.cn 2006-07-10 10:59:47

       WASHINGTON, July 9 (Xinhua) -- The U.S. economy posted strong growth in the first half of 2006 with good prospects forecast for the next half despite the soaring oil prices.

    The economy grew at an average rate of 5.6 percent in the first quarter of this year, higher than the estimated 5.3 percent, according to a report of the Commerce Department.

    It is the fastest growth pace for the U.S. economy in the past 30 months.

    The report showed that the U.S. personal consumption expenditure, which accounts for about two-thirds of the country's gross domestic product (GDP) and is the major engine of the economic growth, increased 5.1 percent, compared with 0.9 percent in the final quarter of 2005.

    The stronger U.S. GDP figure for the first quarter is also whittling away the negative effect of the country's trade deficit.

    Analysts said there are two main reasons behind the strong U.S. economic growth in the first six months of the year.

    First, the jobless rate has declined to 4.6 percent in recent months, the lowest in the past five years. Rising employment and wage hikes for U.S. workers as well as investment in red-hot real estate all gave impetus to the consumer expenditure.

    The U.S. economy also has benefited from the adjustment of its energy strategy in the past decades characterized by diversification of energy resources and increased energy efficiency.

    Former U.S. Federal Reserve Chairman Alan Greenspan has repeatedly said that the flexibility of the market-driven U.S. economy has allowed the country to weather reasonably well the steep rise in spot and futures prices for oil and natural gas that it has experienced over the past two years and more.

    However, risks exist alongside opportunities for the U.S. economy both in the near term and the long term.

    One of the risks is the soaring world oil price which hit a record high of more than 75 U.S. dollars a barrel recently, a dragon the economic growth.

    The increase in short-term interest rates will also slow the pace of the U.S. economy. The Federal Reserve has raised the federal funds rate -- the interest rate charged each other by banks on overnight loans -- by more than 4 percent in the past two years to 5.25 percent, the highest level in five years. There is no doubt higher interest rates will do some harm to the consumer expenditure and business investment.

    Meanwhile, the huge trade deficit and federal deficit as well as the lowest savings rate in decades are also hindering growth.

    The White House predicted last month that the U.S. GDP will grow by 3.6 percent, as measured from the fourth quarter of last year to the fourth quarter of this year. That is better than a 3.4 percent growth rate forecast earlier this year.

    But it also predicted that the U.S. jobless rate will drop to 4.7 percent in 2006, revising down its previous forecast of 5 percent.

    The White House continued to project good economic growth for 2007 and 2008, at 3.3 percent and 3.2 percent respectively, which is expected to contribute to the stability of the global economy. Enditem

(by Wang Zhenhua )