SANTA CLARA (KCBS) – An increase in business spending during 2011 could be undercut by government deficits domestically and abroad, two leading economists warned Thursday.

Dr. Mario Belotti, who teaches at Santa Clara University, and Forbes Magazine publisher Rich Karlgaard both expect the economy to grow this year.

KCBS’ Matt Bigler Reports:

“We’re celebrating the fact that we think the economy’s going to grow three and half or possibly four percent this year,” said Karlgaard, who adds that’s mainly due to an increase in business investment.

However, Karlgaard said the growing budget deficits faced by cities and states are not to be underestimated.

”It definitely cramps the strength of the recovery, but I don’t think it kills the recovery,” said Karlgaard.

Dr. Belotti’s main concern was the Fed going too far with its strategy of quantitative easing.

”They could create more inflation than they expect to have,” said Belotti. “And in that case they might have to go back and increase rates really fast, which might slow the economy down.”

Both men spoke at the Comerica Bank Economic Forecast in Santa Clara.

(© 2011 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.)


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