ECONOMIC growth will take a hit across the major G7 economies this year, apart from the UK, as the credit crisis puts a brake on expansion

ECONOMIC growth will take a hit across the major G7 economies this year, apart from the UK, as the credit crisis puts a brake on expansion, Reuters polls showed yesterday.

The monthly polls of around 250 economists, carried out September 7-13, showed the US, Japanese and euro zone economies bearing the brunt of a global credit market squeeze that has not yet abated.

Economists now see around a 30 per cent chance of a US recession happening in the next 12 months should the effects of a housing market slowdown continue to ripple into the wider economy.

Growth of just 2.1 per cent is predicted this year in the United States, down from the 2.2 per cent recorded last month.

Japanese growth is also expected to be sluggish, coming in at 1.8 per cent in fiscal 2007/2008, well down on the 2.3 per cent seen last month.

Forecasts for Japan were taken before the sudden resignation of Prime Minister Shinzo Abe on Wednesday, which unsettled markets further.

The UK bucked the trend, with analysts upgrading their calls for the economy, predicting growth of 2.9 per cent up from 2.8 per cent last month.

"We have lowered our third and fourth quarter GDP forecasts for the United States on the assumption that business confidence will temporarily retreat in response to the credit crunch," said Michael Englund at Action Economics.

Revised growth forecasts come in tandem with expectations for the US Federal Reserve to lower interest rates, with a rate cut seen as soon as next week, and another to come by the end of the year.

Rates are seen on hold 2008 at 4.5 per cent after another cut by March.

"We now assume that the Fed will feel compelled to lower the Fed funds rate target to end the credit crisis," said Englund.

The main scenario for the United States is for growth to hit a low of 2.0 per cent in the final three months of the year, then creep up through subsequent quarters to average 2.5 per cent in 2008.

This will mark a turnaround against other G7 economies, with growth forecast to slip to 2.3 per cent in the UK and euro zone.

Reuters