Washington | Wednesday
THE probability of the US economy tumbling into recession sharply increased in the aftermath of the September 11 attacks, but a rebound is likely in 2002, the White House chief economic adviser said this week.
The US economy is likely to contract slightly, Glenn Hubbard told reporters, noting that “even a fairly significant enhancement of domestic security might reduce the long-term productivity growth of the United States by no more than a tenth, or two-tenths of a percentage point.”
“The duration of any downturn, should there be one, I think will be quite modest,” he maintained.
But Hubbard warned the impact of the attacks on consumer and commercial confidence could be “more troubling, and potentially more long-lasting.”
The 100-billion stimulus package voted recently by the House Committee on Ways and Means is too expensive, Hubbard said, looking more favourably at a White House proposal for a $60 to 75-billion figure.
That, coupled with the $55-billion appropriated to recovery and rebuilding efforts — including the $15-billion airline bailout package — should be enough to restimulate economic growth, he said.
“The Federal Reserve’s nine interest rate cuts should also help boost growth,” Hubbard said, despite their 12 to 18 month “lag effect.”
If there is a modest contraction, the economy will rebound, likely by 2002, Hubbard forecast, deeming “reasonable” the forecasts of private sector economists who called for 1,5% growth in the first quarter of the next fiscal year.
Growth will then be “higher than that in the second quarter and then 3,5% in the balance of the year.” – AFP
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