Fannie Mae Projects ‘Sluggish’ Economic Growth for 2012

Economic growth isn't looking good for the rest of the year, according to ""Fannie Mae's"":http://www.fanniemae.com/portal/index.html Economic & Strategic Research Group.

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According to the GSE's most recent ""Economic Outlook"":http://www.fanniemae.com/resources/file/research/emma/pdf/Summary_091812.pdf report, downside risks such as the European debt crisis, the fast-approaching fiscal cliff, and the recent slowdown in hiring have created a drag on the second quarter's modest economic growth.

In addition, the summer drought is expected to compound the current slump, with food and agricultural prices rising. With gas prices also on the rise, headline inflation is expected to pick up, stifling consumer spending and possibly affecting consumer attitudes for the rest of the year.

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Given this scenario, Fannie Mae is setting growth expectations to 1.8 percent, a slight increase from Q2, but under Q1's projected 2.0 percent pace.

""The September outlook carries forward many of the trends in July and August, which are keeping growth expectations at sub-2.0 percent for the rest of the year as well as for all of 2012,"" said Doug Duncan, chief economist for Fannie Mae. ""Compensating for some of the economy's sluggishness is an increasingly positive, though subdued, housing market.""

Once again, the housing market proved to be a bright spot in a dim economy. Upticks in home prices indicated that the market most likely hit bottom in the first quarter of the year and is bouncing back up. Home sales also gained ground in July, with year-to-date existing home sales up about 10 percent from the same period last year â€" the best showing since 2007.

Although housing trends continue to be positive, Duncan issued a reminder that gains are being measured from a depressed market, meaning there's still a long way to go.

""We expect home sales of approximately 9 percent for 2012, and we should see steady improvement from there, although it will take some time before we reach healthy norms,"" Duncan said.