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At the start of 2011, growth looked solid. The U.S. unemployment rate was finally dropping, consumers were in a spending mood, and economists were busily upgrading first-quarter growth projections to the range of 4 percent.

Those forecasts are falling fast. Many economists now think the U.S. economy grew at a sluggish 1.5 percent to 2 percent pace over the first three months of the year, and one forecaster even raised the possibility of a negative reading.

Whether this is a short-lived blip or a more worrisome dip depends largely on which way oil prices move, and how consumers and businesses around the world respond.

Goldman Sachs economist Andrew Tilton said downside risk was "unfortunately a phrase we have been using a lot lately."

A quiet week for economic data probably won't bring much, if any, good news. The highlights include a clutch of U.S. housing reports, which will serve as yet another reminder that the real estate slump persists.

Emerging markets have been the strongest global growth engine, giving advanced economies an export boost. But rising inflation pressures mean many countries will be clamping down on credit conditions, which would curb growth. Barclays Capital called inflation the "predominant risk" facing China.

GLASS HALF FULL

As for the United States, Barclays cut its first-quarter growth forecast to a rate of 2 percent from 3.5 percent, not quite as gloomy a forecast as some other Wall Street banks have published.

But Barclays economist Michael Gapen said the forces holding back first-quarter growth would likely prove "temporary" and the firm raised its second-quarter growth forecast -- a rarity these days.

Gapen said economic measures such as industrial production and employment "have all been moving in a way that is consistent with strong, not weak, economic growth."

American consumers have kept up spending on durable goods, including buying autos which should be sensitive to rising oil prices, and that bodes well for growth, Gapen said.

The flip side of that argument is that consumer confidence faded as oil and gasoline prices spiked, and if that translates into slower consumption the economy will suffer. Consumer spending accounts for some 70 percent of the U.S. economy.

"The extra cost of about 70 cents per gallon, relative to prices at the end of 2010, is siphoning off household income at a run rate equivalent to $100 billion per year -- income that otherwise could have been spent on other goods and services," Goldman's Tilton said.

His firm is still forecasting that consumer spending will pick up in the second quarter, but he said that "will require a fortuitous combination of circumstances."

The reserve rate rise, which followed an increase in benchmark bank interest rates on April 5, was the seventh since China stepped up efforts against inflation in October and underscored the government's determination to keep the economy on an even keel.

The move was not a surprise -- investors predicted more tightening after last week's data showed an acceleration in inflation, and more worryingly, sustained capital inflows that threaten to keep inflationary pressure high.

"This rise continues the tightening measures of the central bank," said Lin Songli, an economist with Guosen Securities in Beijing. "The first-quarter GDP shows that the whole economy is good, so there is still space for tightening."

The central bank has also raised interest rates four times since October, slapped price control measures on certain commodities, and clamped down on property speculation.

But price pressures driven by soaring global commodity prices and abundant liquidity continue to plague the Chinese economy.

Central bank chief Zhou Xiaochuan said on Saturday that policy tightening will continue for sometime, as inflation is higher that the government is comfortable with.

And last week, Premier Wen Jiabao signaled a hawkish stance for the coming months, saying that the government would use all tools at its disposal to wrestle inflation under control.

The 50-basis-point increase, effective from April 21, lifted the required reserve ratio for the country's biggest banks to a record 20.5 percent. It will lock up about 350 billion yuan ($53.6 billion) of cash that banks would otherwise be able to lend.

MORE TIGHTENING AHEAD

The latest economic data showed China's turbo-charged economic growth barely slowed in the first quarter, giving the government more confidence to press ahead with policy tightening.

"I think there will be more required reserves hikes in the coming months, or even this month, but the possibility of an interest rate rise this month is not that big," said Zhu Jianfang, chief economist at Citic Securities in Beijing.

The latest Reuters poll conducted on April 6 showed analysts believe the central bank will raise banks' required reserves three times this year by a total of 150 basis points and increase interest rates just once more this year.

But although economists have argued recently that the central bank was near the end of its interest rate tightening cycle, China's economic growth is still cruising near double digits and the scope for China's government to continue tightening may be bigger than previously anticipated.

"The inflation picture is still worrisome and bank lending rebounded in March," said Zhao Xijun, economist at Renmin University in Beijing. "I think the central bank will raise interest rate in the coming weeks -- probably in June."