'The economy will return to growth but not to health,' Bruce Kasman, chief economist for JPMorgan Chase and chairman of the American Bankers Association's Economic Advisory Committee, said on Tuesday.

The committee, which includes economists from Wells Fargo, PNC Financial Services Group, Morgan Stanley and others, expects gross domestic product to increase at an annual rate of 0.5 per cent in the July-September quarter, after falling a projected 1.8 per cent in the April-June period.

Federal Reserve Chairman Ben Bernanke also says the economy could recover by the end of this year.

But jobs will remain scarce and the unemployment rate will keep rising even after the recovery begins, the committee said, peaking at 10 per cent in the first three months of 2010.

The rate will remain elevated through 2010, and will finish the year at 9.5 per cent, the committee forecast. That would be above the current jobless rate of 9.4 per cent.

Still, consumer spending has stabilised after dropping sharply late last year, Mr Kasman said, and businesses have cut inventories, which should lead to reduced layoffs.

In addition, credit is more widely available than it was at the height of the crisis last winter due to the government's efforts to rescue the banks, he said.

But a report from the Treasury Department on Monday showed that lending by the 21 largest banks receiving federal bailout money dropped in April for the fifth time in six months. Total lending by those banks fell to US$4.34 trillion (S$6.3 trillion), down 0.8 per cent from March.

'There are clearly challenges and longer term problems that remain even as the economy recovers,' Mr Kasman said. -- AP