A top panel of economists on Monday slashed its forecast for US economic growth this year, saying the threat of war with Iraq was dampening consumer spending and business activity.

The Blue Chip Economic Indicators panel of forecasters said it expected US gross domestic product to expand at a rate of 2.6 per cent in 2003. The prediction, made at the beginning of March, was down from a rate of 2.7 per cent projected in February and 2.8 per cent forecast in January.

The reduction was based on the belief that economic growth in the first half of the year would be weak, given signals that Washington is poised to go to war with Iraq.

Other factors, such as snowstorms on the East Coast, have also depressed growth during the early part of the year.

The panel projected a growth rate of only 2.2 per cent for the first quarter of this year, a reduction of four-tenths of a percentage point from the 2.6 per cent projected in February.

The group also reduced the second-quarter GDP growth prediction by four-tenths of a percentage to 2.8 per cent.

A GDP increase of 3.6 per cent is expected in the third quarter, while fourth-quarter GDP growth is pegged at 3.8 per cent.

Weather a drag on growth

"While several indicators of economic activity in January proved to be stronger than expected, February data -- also influenced by severe winter storms in the Eastern half of the nation -- is expected to generally come in on the soft side," the panel said in a summary.

"But some analysts caution that growth could remain weak in March as the initiation of US action against Iraq freezes consumer and business activity for a time," it added.

While the polls results were gloomy, they might have been even more pessimistic if analysts took into account the latest employment figures.

The Labor Department on Friday reported a 308,000 plunge in payrolls in February and a rise in the unemployment rate to 5.8 per cent from 5.7 per cent.

The decline in February payrolls was the sharpest since November 2001, just after the Sept. 11 attacks on the United States. Analysts said war fears have led to a widespread reluctance to hire, although some temporary factors, such as the call-up of military reservists, depressed recent payrolls data.

The Blue Chip survey was conducted before the jobs data was released.

The economists' panel said higher energy prices were already depressing growth. In the event of war, they said, consumers would likely watch television coverage of the conflict rather than go shopping.

The past few days have seen the Iraq crisis build in intensity. The US is seeking support in the UN Security Council for a March 17 ultimatum, calling on Iraq to disarm or face war. US officials have warned that even if the resolution fails to pass the council, Washington might still go to war.