WASHINGTON (Reuters) - Despite President Barack Obama's warnings that the U.S. economy will get worse before it starts improving, the White House offered Thursday a rosier outlook for the economy than most private forecasts.

With the $787 billion economic stimulus package pouring money into the struggling economy, Obama's first forecast since taking office predicted that the economy will shrink 1.2 percent in 2009 before growing again by 3.2 percent in 2010.

That forecast is more optimistic than projections by most economists surveyed by the Blue Chip Economic Indicators newsletter just before the stimulus plan was approved. They forecast economic output would contract 1.9 percent in 2009 before growing 2.1 percent next year.

White House officials defended their projections saying that private economists may not have fully accounted for the economic stimulus package and recent efforts to jumpstart the moribund housing market.

"We're a little less pessimistic than some forecasts but I think the crucial thing is we're very much in the same ballpark," said Christina Romer, chairman of the White House Council of Economic Advisers. "It was an honest forecast."

The Blue Chip forecast from Feb. 10 said the expected steep drop in GDP was a result a significant decline in inventories and continued softness in personal consumption, capital spending and home the ailing residential real estate market.

"The situation is deteriorating almost daily," said Nigel Gault, an economist at IHS Global Insight. "They clearly do have an economic backdrop to their budget that is too optimistic."

Gault said that the White House forecast was probably too optimistic because at a certain point they had to lock in the number and could not adjust it as economic conditions have worsened in recent days and weeks.

While Obama's $3.55 trillion budget offered a gloomy outlook, the economic forecast appeared to be a little silver lining as he tries to balance being forthright about the future while not causing further damage to confidence in the U.S. economy.

"I reject the premise that we're noticeably rosier," Romer said.

Obama's optimistic economic outlook extended beyond gross domestic product. His forecast for inflation and unemployment were also better than private forecasts.

Even as the Labor Department on Thursday reported the highest number of new people applying for weekly jobless benefits since 1982, Obama's budget forecast that unemployment would reach 8.1 percent this year and 7.9 percent next year before falling lower.

Obama has said he expects the economic stimulus package to save or create some 3.5 million jobs over two years. The Blue Chip forecast projected unemployment would hit 8.3 percent this year and 8.7 percent next year.

"It takes a while to turn unemployment around, first you have to start growing again," Gault said.

The Obama administration also forecast that consumer prices would fall by 0.6 percent this year before going up 1.6 percent in 2010. The Blue Chip forecast found that prices would probably decline 0.8 percent this year and rise 1.8 percent in 2010. (Reporting by Jeremy Pelofsky, editing by Jackie Frank)