WASHINGTON- The U.S. economy will continue to grow at a moderate pace, with ongoing downside risks from Europe and the looming "fiscal cliff," according to the Economic Advisory Committee of the American Bankers Association.

According to the committee, which includes 12 bank economists from among the largest banks in North America, inflation-adjusted GDP will expand by 2.2 percent this year, compared to 1.6 percent in 2011.

"Although economic growth will pick up, downside risks have become more pronounced," George Mokrzan, committee chairman and Huntington Bank chief economist, said.  "Our consensus forecast is that the economy isn't growing rapidly enough to push the unemployment rate below 8 percent by year-end."

The group sees enough positives to keep the economy moderately moving forward. Consumer spending, which represents 70 percent of the economy, is expected to grow at an annualized rate of 2.4 percent this year.   Household debt service has dropped, strengthening consumer balance sheets, which could support future spending. Auto sales will exceed 14.5 million units this year, a strong showing. 

The committee also forecasts a mild recovery in the housing market.  The committee foresees a rebound in real residential investment spending, growing at a 10.4 percent pace for 2012, but coming off a low base.  However, housing prices are stabilizing at depressed levels.  And with record-low mortgage rates, the committee forecasts a rise in new and existing home sales. 

The bank economists see the economic challenges facing Europe as a significant risk to the U.S. economy. Europe is one of America's largest trading partners, and weakened finances in that region could risk a global crisis.   

"European leaders understand the need for strong, collective action to right the ship," Mokrzan said.  "If countries delay or don't take the necessary steps, the situation could escalate and further threaten the global economy." 

The bank economists also see continuing fiscal challenges as a major risk to the U.S. economic outlook.

The threat of a "fiscal cliff" may discourage business expansion, according to the committee. Firms may not want to take on new hiring and spending commitments with major potential tax hikes and federal spending cuts looming.

"We urge Congress and the administration to generate a consensus solution to avoid a devastating impact on the economy," Mokrzan said. 

The committee feels that monetary policy will continue to strongly support economic growth for the foreseeable future. With inflation holding near 2 percent, the bank economists believe that the Federal Reserve will maintain the target range for the federal funds rate between 0 percent and 0.25 percent at least throughout next year. 

"Low rates are supportive of capital investments by businesses and enable households to afford homes, cars and other consumer goods," said Mokrzan. "This will help keep the economic motor running."

The committee forecasts that strong credit growth in 2012 will continue into next year.  Loans to businesses are expected to grow 11.5 percent this year, while loans to individuals are expected to increase 7.4 percent. 

"The significant increase in credit growth shows that banks are doing their part to make loans that will help drive the economic recovery," Mokrzan said.  

The members of the 2012 ABA Economic Advisory Committee are:

    •     EAC Chair George Mokrzan, director of economics, Huntington Bancorp., Columbus, Ohio;
    •     Scott Anderson, director and senior economist, Wells Fargo & Company, Minneapolis
    •     Scott J. Brown, SVP and chief economist, Raymond James and Associates, St. Petersburg, Fla.;
    •     Sherry Cooper, EVP and chief economist, BMO Financial Group, Toronto;
    •     Robert Dye, SVP and chief economist, Comerica Bank, Dallas;
    •     Ethan Harris, co-head of global economics, Bank of America Merrill Lynch, New York;
    •     Stuart Hoffman, chief economist, The PNC Financial Services Group, Inc., Pittsburgh;
    •     Peter Hooper, co-head of global economics, Deutsche Bank, New York;
    •     Nathaniel Karp, EVP and chief economist, BBVA Compass, Houston;
    •     Bruce Kasman, managing director and chief economist, JP Morgan Chase, Inc., New York;
    •     Christopher Low, chief economist, First Horizon National Corp's FTN Financial, New York;
    •     Gregory Miller, SVP and chief economist, SunTrust Bank, Inc., Atlanta

Click here for detailed EAC forecast numbers.

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The American Bankers Association represents banks of all sizes and charters and is the voice for the nation's $14 trillion banking industry and its two million employees.  Learn more at aba.com.