WASHINGTON, D.C. — The Economic Advisory Committee of the American Bankers Association, including 11 chief economists from the largest banks, is predicting the economy will continue moderate growth with relatively low inflation and steady job growth in 2012.

Inflation-adjusted GDP growth rose to an annualized pace near the long-term potential of 2.5 percent in the latter half of 2011, and will stay on this path throughout 2012.

"Despite severe shocks in recent years, the economy has shown resilience as it continues a gradual march forward," explained George Mokrzan, committee chairman and Huntington Bank chief economist.

"The economy is gaining momentum with strong capital expenditures from business and moderate consumer spending setting the stage for sustained growth," he added.

Although the unemployment rate is expected to remain relatively stable at 8.6 percent, the economy should add 1.6 million payroll jobs — the same number it did in 2011. The committee noted that the job recovery will be prolonged.

"We're moving from a difficult environment to one that is slowly starting to improve," Mokrzan said. "The recovery is adding jobs, which will spur consumer spending and increase housing demand. This helps the economic expansion to become more self-sustaining."

Even though consumer confidence remains weak, the committee expects consumer spending to continue to grow by a 2.0-2.6 percent pace each quarter and by 2.4 percent this year.  That rate, along with strong business spending, will keep the economy on a slow, but steady path forward.

"Solid corporate earnings will encourage business investment, with capital equipment leading the way," Mokrzan said. "Additionally, consumers are taking advantage of historically low interest rates and beginning to spend more."

The committee sees signs that housing price declines are easing nationwide, but not in all areas, and there are risks that foreclosures could begin to pick up. Housing sales and starts climbed throughout 2011, and the committee forecasts a gradual recovery throughout 2012. 

"Record affordability has made buying a home an attractive proposition, and should help increase demand," said Mokrzan.

Low interest rates and strengthening credit will support economic growth, according to the committee. For consumer credit, and even more so for business credit, the committee foresees a gradual reduction in delinquencies and a strengthening of credit growth in 2012. 

The committee forecasts consumer loans will grow 4.1 percent and business loans will grow 7.8 percent in 2012.

"Banks are increasing lending to borrowers, which will continue to support the economic expansion," Mokrzan said.

With moderate economic growth and business investments in productive capacity, the committee predicts core inflation — excluding energy and food — will remain below 2 percent through 2012, just as it did last year. Absent inflationary pressures, the committee expects the Fed to maintain the federal funds rate target at its current level throughout the year. However, spikes in energy prices remain a risk to the committee's inflation forecast.

Low inflation and Fed policy will keep interest rates down in general, according to the committee.  The forecast for 3-month Treasury bills is to hold near zero through this year. The 10-year Treasury note and 30-year mortgage rates are expected to rise to 2.5 percent and 4.3 percent, respectively, by year-end.

Despite a moderately positive outlook, the group sees several significant downside risks to the U.S. economy, including the European debt crisis, challenges surrounding U.S. fiscal policy and geopolitical risks. 

"Europe will likely experience a mild recession this year, which will slow U.S. exports, but will not dramatically affect our economy unless Europe's financial challenges become much more severe," Mokrzan added.

The members of the ABA Economic Advisory Committee include:

—EAC Chair George Mokrzan, Director of Economics, Huntington Bancorp., Columbus, Ohio.
—Scott Anderson, director and senior economist, Wells Fargo & Co., Minneapolis.
—Scott J. Brown, SVP and chief economist, Raymond James and Associates, St. Petersburg, Fla.
—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, PNC Financial Services Group Inc., Pittsburgh.
—Peter Hooper, co-head of global economics, Deutsche Bank, New York.
—Nathaniel Karp, executive vice president & chief economist, BBVA Compass, Houston.
—Bruce Kasman, SVP and chief economist, JP Morgan Chase, New York.
—Christopher Low, chief economist, First Horizon National Corp's FTN Financial, New York.
—Gregory Miller, VP and chief economist, SunTrust Bank, Inc., Atlanta.