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August 25, 2008

US official sees slow growth in H2
US consumer spending will tail off as the effects of government rebates to taxpayers wear off, hurting economic growth in the second half of the year, Reuters quoted the director of the Congressional Budget Office as saying Saturday.

"While it's early, it looks to us like the stimulus helped to support consumption in the middle part of this year," CBO head Peter Orszag told Reuters in an interview on the sidelines of the Kansas City Federal Reserve's annual monetary policy conference in Jackson Hole, Wyoming.

"One of the things we'll be experiencing later this year is the withdrawal of that effect leading to economic weakness," he said.

Orszag said CBO's analysis refutes economists who say households used their rebate checks primarily to save or pay down debt.

"You would have had much weaker consumption without it," he said.

According to initial government data, the US economy grew at a 1.9 percent annual rate in the second quarter, a soft pace but enough to push it away from the brink of recession. Analysts said much of that expansion was driven by spending from the rebate checks.

The Commerce Department's second reading on economic growth for the second quarter is due out on Thursday.

Strong US exports, helped by a weak dollar, have also buoyed economic activity.

The economy shrank in the final quarter of 2007, the first U.S. contraction in six years, before barely edging up at the start of the year.

The hope behind the first stimulus package was that it would generate economic momentum, but a deep housing slump and credit crunch have persisted.

"The economy has not recovered sufficiently, so that withdrawal of the stimulus does look like it will create an air pocket afterwards," Orszag said.

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