GENEVA (AFX) - The U.S. economy could be heading for a longer, deeper downturn than suggested by some more optimistic forecasts, which predict a moderate upturn this year, said the UN Economic Commission for Europe (UN/ECE) in its Economic Survey for Europe.
Commenting on expectations of a growth rate of just under 2 pct in the U.S. this year and further strengthening in 2002, it said: "This scenario could well turn out to be too optimistic," but a lot depends on how the deteriorating climate affects household spending and savings.
"Our view is that (the) downturn in the United States is very likely to be deeper and longer than some of the more optimistic assessments which have been doing the rounds," Paul Rayment, of the UN/ECE, told a news briefing.
Excess capacity and the need for balance sheet adjustments in the private sector could help dilute the effectiveness of the more expansionary U.S. monetary policy, the survey warned.
On Monday, Bank of England governor Sir Eddie George told the Swiss Institute of International Studies that the U.S. economy is likely to recover towards the end of the year.
However, the UN/ECE said that even if the U.S. does recover quickly, imbalances remaining in its economy, notably low household savings and the burgeoning current account deficit, need correcting. "The longer these adjustments are delayed the greater is the probability that when they do eventually occur they will involve very abrupt changes in behaviour, with a much greater risk of international financial turmoil," the survey said.
For the euro zone, the UN/ECE said monetary policy has been too cautious, despite deteriorating growth prospects. Some of the aspects behind optimism for growth in western Europe were "subject to query", it said.
In the euro zone, real GDP is currently forecast to increase by about 2.5 pct this year, against 3.4 pct in 2000, as reflected in the sharp drop in business confidence in Germany, the survey said. Rayment said in the UN/ECE's view, the EU's policy stance is currently "insufficiently expansionary". He underlined the ECB's 2 pct inflation target is for the medium term.
"Combined with forward looking data and expectations, it's very difficult to see why the fear of inflation is playing such a dominant role in policy discussions at the moment," he told reporters. Turning to eastern European and Commonwealth of Independent States (CIS) economies, the UN/ECE said growth prospects depend on the performance of North America and western Europe.
Former centrally planned economies saw aggregate GDP increase by 6 pct in 2000, largely due to strong recovery in Russia which saw its highest growth rate in more than 30 years.
Official forecasts for 2001 suggest economies of eastern Europe, including the Baltic States, Russia and other members of the CIS are expected to grow by about 4 pct.
The U.S. deceleration, and lowering of growth forecasts for western Europe will have a serious impact on all the transition economies, the survey said. Apart from a few central European countries, these economies have little scope for expanding domestic demand, it said.