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U.S. Growth May Falter on Weak Dollar, Higher Tax, Forbes Says

June 7 (Bloomberg) -- U.S. growth may be hurt by a weak currency and higher taxes, said Steve Forbes, chief executive officer of Forbes Inc.

“We’re going to see growth this year but the question is how sustainable will it be?” Forbes said in an interview on Bloomberg Television’s “Asia Confidential” today. “The answer right now is: not very sustainable over the next two years because of the weak dollar, higher taxes and spending.”

Economists including Allen Sinai at Decision Economics and Michael Moran at Daiwa Capital Markets America in New York have begun to lower their U.S. growth forecasts, suggesting the U.S. may be headed for a slowdown as the sovereign-debt crisis in Europe, fading government support and persistently high joblessness threaten to weigh on expansion in the second half of the year.

The world’s largest economy expanded at a 3.6 percent pace in the nine months through the first quarter, according to the latest data available from the government. Sinai and Moran now expect annualized growth of 2.25 percent to 2.5 percent in July-December, down from about 3 percent previously.

The U.S. economic rebound won’t be derailed by Europe’s sovereign-debt crisis, and gross domestic product is likely to grow 5 percent to 6 percent in the second half, reaching about 4 percent for the full year, Forbes said. He didn’t provide a forecast for the following 12 months.

Still, the Labor Department reported last week that private-sector employers added 41,000 jobs to their payrolls in May, down from 218,000 in April and well below the 180,000 median forecast by 35 economists in a Bloomberg News survey. While the unemployment rate fell to 9.7 percent from 9.9 percent, it’s remained above 9 percent since May 2009.

Tax Threat

“The reason you’re seeing that job creation is less than what you’ll expect after a recession is because of the uncertainty that’s happening on regulations and prospects of major tax increases,” Forbes said. “There is demand, but companies are going to hire almost as a last resort because of this uncertainty.”

Forbes said a weak dollar policy is hampering growth as it encourages speculation, while hurting sound business investment.

“The dollar is only strong against currencies that are weaker,” he said. “It’s like a 98-pound weakling against a 92-pound weakling. Neither one is going to be lifting weights at the Olympics.”

The euro today dropped to its weakest level since November 2001 versus the yen and touched a four-year low against the dollar. Investors have pushed the dollar up 27 percent versus the euro since November as bond yields in Greece, Portugal and Spain rose along with concern about their budget deficits.

Forbes also said there is “real disenchantment” over President Barack Obama’s policies, which could lead to big gains for the Republicans in the November mid-term elections.

To contact the reporter on this story: Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net; Chris Anstey at canstey@bloomberg.net

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