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The US economy will avoid falling back into recession this year, and instead grow 1.7%, the White House has predicted.

The figures come in the mid-year fiscal budget review by its Office of Management and Budget (OMB).

They show that the Obama administration expects the economy to improve towards the end of the year.

So far, official data shows that the economy grew only 0.4% in the first quarter and 1% in the second.

In the OMB's previous forecast back in February, it predicted that the US economy would expand 2.7% this year, but that had been seen as greatly inaccurate for many months.

The White House is far more pessimistic about reducing the level of US unemployment.

The official unemployment rate was 9.1% in July, and is expected to be similar when August's data is released on Friday.

The OMB said the jobless rate could still be as high as 9% late next year, or at best 8.2%.

With the next presidential election due in November 2012, the issue of tackling unemployment is expected to be one of the key issues.

The OMB said the US economy had been affected this year by high oil prices, the Japanese earthquake hampering supplies for American manufacturers, debt concerns in the European union, and the long political dispute over raising the country's debt ceiling.

As a result, it said "economic growth and job creation, while positive, have not been strong enough to bring down the unemployment rate to an acceptable level".

Yet it added: "Despite recent setbacks, the administration expects the economy to grow at increasing rates in the months and years to come."

Earlier on Thursday, a report by the Institute for Supply Management said the rate of US manufacturing output had slowed in August to a two-year low.