---- by STUART WILLIAMS ----
DAVOS, Switzerland (AFX) - The U.S. economy is on the brink of recession but tax and interest rate cuts should ensure that the slowdown is short-lived, said business and political leaders attending the World Economic Forum.
But they expressed concern that the continued economic stagnation in Japan and need for further restructuring measures in the country will have serious implications for the world economy.
IMF director general Stanley Fischer said that the IMF is set to slash is forecast for 2001 world growth to 3.5 pct from 4.2 pct.
In a keynote speech described as a "cheer-up message", Japanese Prime Minister Yoshiro Mori failed to convince the Forum with his claim that the domestic economy is on the verge of a full recovery, policy makers said.
Mori said that reforms undertaken since the economic meltdown in the late 1990s have taken Japan to a point where growth for 2001 will only fall slighlty short of the country's full growth potential.
However former U.S. treasury secretary Lawrence Summers echoed widespread concern that the reforms have been insufficient, saying that Japan could not rely on the IT revolution to engineer its recovery. "You have to be profoundly troubled by the state of the Japanese economy ... nominal GDP growth is close to nought," he said.
Boeing chairman and chief executive Phil Condit said that an upturn in Japans's economic fortunes does not appear imminent. "It (the Japanese economy) continues to concern me. It's been flat on its back for ten years now."
Fischer said that the only "whip" remaining to drive the Japanese economy into shape is further restructuring, especially of the banking and insurance sector.
But even this would take some time before its effects are felt, he said.
In contrast to the negative forecasts for Japan, policy makers expressed confidence that the U.S. authorities will use fiscal and monetary tools sensibly to ensure that the downturn will only be a blip.
"I am confident of the situation in the U.S.", said French Finance Minister Laurent Fabius. "The U.S. authorities have large room for manoeuvre in terms of interest rate cuts and fiscal measures." Economist and Nobel Laureate Robert Mundell said that despite signs of recession the effects of the downturn in the U.S. will be limited as it has numerous "tools in its arsenal".
Leading corporate executives also said that while business is expected to slow in the first quarter of this year, trade should pick up in the second half.
Cisco Systems Inc chief executive John Chambers said investors should take a more "conservative" view of the company's outlook for the next six months as the U.S. "market is slowing down much faster than people realised."
"January was a challenge for us. Our customers are struggling. Capital spending is down dramatically ... we do not know how rough rough is going to be", he said.
But he added that the U.S. economic downturn will only last two quarters and possible rate cuts from the Fed and tax cuts from President George Bush make him "very optimistic for the second half". Bullish Goldman Sachs equity guru Abby Joseph Cohen said in an interview with AFX News that although some 15-20 pct of companies have issued profit warnings in the past quarter this has been within the market's expectations.
"The earnings reports that we have seen during this reporting season have generally not been too bad", she said.
The effect of the slowdown on high technology companies should also be mollified by the unveiling of new products in the coming years, executives said.
Sun Microsystems chief researcher John Gage said that despite the current slowdown in IT spending the new generation of games consoles represents a huge revenue opportunity for the company.
Microsoft chairman Bill Gates said he believes PC sales will be stimulated by the "next wave of applications, be it the next stage of Windows or something else"