- WASHINGTON (AFP) - White
House chief economic advisor Lawrence Lindsey said Wednesday the September
11 terror attacks were tipping the US economy into a recession.
-
- "Some would say we are in a recession," Lindsey
told a conference sponsored by Schwab Capital Markets here.
-
- "In fact, when the numbers are out, I suppose my
prediction would be that we are going to have two quarters of negative
growth," he said. Two quarters of negative growth is the technical
definition of recession.
-
- It was the starkest assessment yet of the economy by
a member of US President George W. Bush's administration.
-
- Treasury Secretary Paul O'Neill has warned of a contraction
in the third quarter alone, going only so far as to say that a US recovery
has been delayed "by a quarter or so."
-
- Most private economists are forecasting a recession as
a result of job cuts and damaged confidence after the terrorist attacks,
with an economic contraction in the third and fourth quarters.
-
- Just hours before Lindsey's comments, US Federal Reserve
chairman Alan Greenspan told Congress the economy would surmount a short-term
blow to productivity from the attacks.
-
- Greenspan stressed the uncertain fallout of the disaster,
in which 19 terrorists hijacked four planes, flattened the World Trade
Center, damaged the Pentagon and killed more than 5,000 people.
-
- "Nobody has the capacity to fathom fully how the
effects of the tragedy of September 11 will play out in our economy,"
he said, although it would be easier to gauge in the weeks ahead as the
shock wore off.
-
- The attacks would, however, unravel some of the rapid
technology-driven productivity increases achieved since 1995, which had
driven US economic growth, Greenspan said.
-
- "It does reverse part of what we have succeeded
in doing," he said. "It is a partial but by no means full reversal."
-
- Businesses, for example, would be less willing to hold
inventories down to minimal just-in-time levels because of the heightened
uncertainty, the Federal Reserve boss said.
-
- "In addition to the loss of human life and capital
assets, these are important collateral costs associated with the new threats
that we now face," he added.
-
- "But once the adjustment is completed, productivity
growth should resume at rates in excess of those that prevailed in the
quarter-century preceding 1995."
-
- Over the longer term, Greenspan said, prospects for rapid
technological advances and associated productivity growth in the United
States were "scarcely diminished."
-
- "Those prospects, born of the ingenuity of our people
and the strength of our system, fortify a promising future for our free
nation."
-
- Economists said the Federal Reserve's message was optimistic
over the longer term.
-
- Greenspan said markets would adjust to the new perceptions
of risk after the attacks.
-
- "Behaviour is difficult to predict in circumstances
such as those we have experienced in the past five weeks. But judging from
history, human beings have demonstrated a remarkable capacity to adapt
to extraordinarily adverse circumstances," he added.
-
- "And, I expect the same adaptability to become evident
in the present situation."
-
- The Federal Reserve had cut interest rates "appreciably",
he said, referring to two half-point cuts since the attacks that sliced
the key federal funds target to a 39-year low of 2.50 percent.
-
- Policy was eased to cushion the potential for heightened
uncertainty to dampen household and business spending, Greenspan said.
-
- Salomon Smith Barney economist Christopher Wiegand said
his institution agreed with Greenspan that the immediate impact of the
attacks was still coming into view.
-
- "As for the longer-run growth prospects of the economy,
the (Fed) chairman -- like us -- remains upbeat," he said.
|
