US economy, the view from England
Growth setback revives fears of recession in US
BY GARY DUNCAN, ECONOMICS CORRESPONDENT
FEARS of recession in America were revived yesterday as a sharp cut in estimates of its first-quarter growth reinforced a warning from Alan Greenspan, the Federal Reserve Chairman, that swift US recovery remained far from certain.
In a sombre speech in New York, Mr Greenspan said it was too soon to assume that America was poised for a quick bounce-back from its economic troubles.
“The period of sub-par economic growth is not yet over, and we are not free of the risk that economic weakness will be greater than currently anticipated, requiring further policy response,” he said.
With the Fed Chairman also dismissing any risk of rising price pressures, referring to a “lack of inflationary zest”, his remarks held out the prospect of fresh cuts in US interest rates. But despite this reassurance, markets were shaken by a worse-than-expected downgrading of US growth. An optimistic early estimate that the economy expanded by an annualised 2 per cent in the first quarter was cut to just 1.3 per cent.
The deep revision was driven by a rise in the pace at which US companies are cutting stocks, now put at the fastest for 18 years, with inventories plunging $18.9 billion (£13 billion) in just three months.
Although eliminating a glut of unsold goods is seen as vital to US recovery, Mr Greenspan echoed warnings from analysts that this process was not yet over. The data also showed consumer spending weaker than was previously thought, and corporate profits falling to a seven-year low as a share of US GDP.
Hopes that Britain will weather the impact of the US downturn were boosted by an upward revision to the UK’s first-quarter growth, from 0.3 per cent to 0.4 per cent quarter-on-quarter — outstripping the equivalent 0.3 per cent US figure.
The Times (London) |
