ECONOMISTS SAY EXPANSION WILL CONTINUE

ECONOMISTS SAY EXPANSION WILL CONTINUE

The current U.S. economic expansion, now in its eighth year, will continue through the second quarter while domestic interest rates will remain steady, according to a survey of 50 economists by Knight-Ridder Financial News.

However, estimates for real gross national product growth for the second quarter may overstate the strength of the economy, which essentially is sluggish, economists said.Still, inflationary pressures, which tend to ease with slackening growth, will keep consumer prices at the current stubbornly high levels. The consumer price index, excluding the volatile food and energy components, is locked around the 4.5 percent level.

Several economists said, at the same time, that protracted real GNP growth of below the economy's longer-term potential - estimated at 2.5 percent - ultimately will lower inflation. The question, however, is by how much.

''I don't think the fact that we have below potential growth will have a major impact on inflation" over the near term, said William Griggs, a managing director at Griggs and Santow Inc., an economic and financial consulting firm.

"There's going to be so much pressure on the cost side, that corporations are going to bite the bullet and raise prices," he said.

On average, the economists offered these projections for the second quarter:

* Interest rates will average 7.91 percent on the three-month Treasury bill, on a coupon-equivalent basis, and 8.39 percent on the 30-year bond. The first-quarter averages were 8.03 percent and 8.42 percent, respectively.

* Real GNP will rise at an annual rate of 2 percent, compared with an estimated 2.5 percent clip in the first quarter.

* Consumer prices will rise at a 3.6 percent annual rate, compared with an estimated 7.3 percent annual rate in the first quarter.

* Industrial production will expand at an annual rate of 1.7 percent, up

from a projected decline of 2.2 percent in the first quarter.

* The rate of civilian unemployment will edge up to 5.4 percent by June,

from 5.2 percent in March.

Several economists said second-quarter economic growth likely will be spurred by the momentum of the rebound in the first quarter from the anemic fourth-quarter rate of 1.1 percent.

Forecasts of strengths and weaknesses in the various sectors of the economy differed, but economists generally agreed that construction and consumer spending on durable goods would be sloppy.

The economists predicted that consumer spending on services would be healthy but not spectacular, and exports would be sluggish, which perhaps would widen the merchandise trade deficit.

But economists offered mixed views on business investment, government spending and inventories.

''The economy is fundamentally soft," said Lawrence Chimerine, a senior adviser to The WEFA Group, a Bala Cynwyd, Pa., economic and financial consulting firm.

A move toward lower domestic interest rates also will be thwarted by continued higher, albeit steady, inflation, economists predicted.

But several economists said the Fed, while casting a wary eye toward inflation, would concentrate largely on averting a recession.