With the trade sector continuing to bustle, the United States can look ahead to stronger economic growth in 1989, the Reagan administration said in its final economic outlook statement.
The trade deficit will not shrink as fast in 1989 as it has this year, but improvement in the U.S. trade position will be significant, said Beryl Sprinkel, chairman of the president's Council of Economic Advisers.He told reporters that export demand will keep improving and that exports will continue to be one of the biggest factors contributing to (economic) growth next year.
The administration's forecast, a consensus view developed mainly among the CEA, Treasury and the Office of Management and Budget, looks for real gross national product to rise 3.5 percent from the fourth quarter of 1988 to the same period in 1989.
That is up from a 2.6 percent estimated rate for this year.
Mr. Sprinkel said the forecast includes a big boost to GNP growth calculations in the first three months of 1989, as the Commerce Department adds back the lost growth in GNP figures this year because of the drought.
If that first-quarter boost in GNP figures were removed, the economy would probably grow 2.8 percent next year, the administration said.
That estimate is higher than many private forecasts, but the president's chief economist said he thinks that many analysts are again keeping their sights too low. The economy this year turned out a good deal stronger than most forecasters projected at this point last year, he noted.
Mr. Sprinkel would not say what level he expects for the 1989 trade deficit. But, while cautioning that growth in inflation-adjusted net exports would be slower than the record 1988 pace, he said it would still be sizable.
The forecast was optimistic on major economic signposts, predicting slower inflation, lower interest rates, and slightly more progress in bringing down the unemployment rate in the year ahead.
Mr. Sprinkel said he thought inflation pressures and inflationary fears are abating, and thought the Federal Reserve can continue slowing the growth of money without pushing interest rates higher.
He thought inflation would slow mainly because money growth has been quite restrained in the past 18 months, and because temporary factors such as last summer's food price surge are easing.
Looking ahead, Mr. Sprinkel doubted that Fed Chairman Alan Greenspan would need to raise interest rates to combat inflation, since the supply side of the economy has been performing well.
The forecast will be used to help the budget office calculate the coming year's tax receipts and federal deficit.
Mr. Sprinkel said the forecast assumes no tax increase, as President-elect George Bush has pledged. It also assumes that President Reagan's final budget will meet the legal deficit targets, and that the United States will continue to cooperate with foreign partners on maintaining worldwide economic growth with stable prices.
Although the growth forecast banks on a first quarter bulge from the way Commerce figures GNP, Mr. Sprinkel would not say whether this meant that growth would be weak the rest of 1989.
The CEA chairman said he had no direct contact with representatives of Mr. Bush in preparing the economic outlook, although Treasury Secretary Nicholas Brady, a close friend of Mr. Bush who will retain his post in the Bush administration, participated in drafting the projections.