A Year Of Growing More Slowly

A MIDST ALL THE speculation about what newly reelected U.S. President George W. Bush will do is something that is not changing. At least for the moment, Merrill Lynch & Co. is not changing its subdued U.S. economic forecast for 2005. The New York-based securities firm is projecting just 3% in inflationadjusted growth next year, ranging from a low of 2.5% in the first quarter to a high of 3.8% in the fourth quarter.

"Suffice it to say, President Bush had tremendous fiscal flexibility in 2000 when he inherited a [federal] budgetary surplus in excess of $200 billion and a 10-year [Congressional Budget Office] forecast of $5.6 trillion of black ink," states David A. Rosenberg, Merrill's chief North American economist. "He has no such maneuvering room this time around, and along with the lagged impact of Fed tightening and a higher energy price environment, the prospect that fiscal policy turns from stimulus to drag is bound to keep a lid on GDP growth in the coming year," says Rosenberg.