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Experts: High oil prices may cause lasting harm

Monday, April 11, 2005 | 9:35 a.m.

This time, the rise in global oil prices is likely to do some damage to the U.S. economy.

That's the view of an increasing number of economists who are beginning to reduce their growth forecasts for the third and fourth quarters. Unlike the temporary surge of 2004, which landed the economy in what Federal Reserve Chairman Alan Greenspan described as a "soft patch," oil and gasoline prices have risen enough to do more lasting harm, they say.

The median forecast in the most recent Bloomberg News survey of economists, conducted April 1-7, predicted that the economy would grow at a 3.5 percent annual rate during the second half of 2005, down from 3.7 percent predicted in March. That outlook may be too optimistic, says Kurt Karl, chief U.S. economist at Swiss Reinsurance Co.

"You can't push this one aside," says Karl, who lowered his second-half forecast to 2.9 percent this month from 3.4 percent. "It's clearly a problem for the economy, and it's going to bite into what consumers can spend for other things."

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