WASHINGTON, Jan 30: Growth in the world’s biggest economy slowed to a 0.6 per cent annual pace in the fourth quarter of 2007 amid a worsening housing slump and a related credit squeeze, the government said on Wednesday.

The Commerce Department survey was worse than expected as most economists had only expected gross domestic product (GDP) growth to slow to around 1.2 per cent during the last three months of 2007.

Growth shifted abruptly from a 4.9 per cent annualised clip in the third quarter, decelerating to its weakest rate since the fourth quarter of 2002.

The weaker-than-expected growth snapshot comes amid mounting fears that the giant US economy could be slipping into a recession.

“It’s a little weaker than expected. The bottom line is that the economy was losing momentum late last year and we think it will slow further as consumer and business spending will slow,” said Sal Guatieri, an economist at BMO Capital Markets.

The report was released hours before the Federal Reserve was widely expected to announce another cut in US interest rates in a bid to underpin economic momentum.

The Fed embarked on a rate-cutting drive in September as major banks began divulging billion dollar losses related to mortgage investments. The banks’ losses triggered a credit crunch which has plagued the financial system.

The central bank’s federal funds rate is presently anchored at 3.50pc after the Fed slashed the rate by an historic three quarters of a percentage point last Tuesday.

The government’s initial reading of fourth quarter growth, which is subject to revision, showed that the housing slump acted as a major drag on overall growth.

The survey revealed that real residential fixed investment, essentially new home construction, plummeted 23.9 per cent, marking its biggest decrease since the fourth quarter of 1981.

The economy is weathering a two-year long housing slump with a glut of unsold homes weighing on the property market. Home prices in many states have also weakened in the past year.

A deceleration in consumer spending also put a brake on economic momentum.

Personal consumption expenditures increased by 2.0 per cent between October and December, compared with a stronger 2.8 per cent rate in the prior three-month period.—AFP