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US to avoid crash
January 25, 2001: 8:32 a.m. ET

Experts: US economy to avoid recession, Bush tax cuts won't help
By Rod Cant Europe business writer
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DAVOS, Switzerland (CNNfn) - The US economy will narrowly avoid a recession, according to a panel of distinguished economists at the World Economic Forum Thursday.

It's going to be a close-run thing however, and the US economic slowdown will have a significant impact on the rest of the world, they argued.

Alan Blinder, economics professor at Princeton University and former deputy chairman of the US Federal Reserve calculated there is a one in three chance of the economy going backwards in the next six months. He dismissed any thoughts the tax cuts proposed by President George W Bush would be able to make a significant difference.

"It requires an unwarranted leap of faith to think you can time a tax cut to prevent recession," he told a packed auditorium, adding, "it can be done, but you have to be lucky and skilful."

Afterwards Blinder told reporters that any Bush tax cuts would come too late to save the economy this year, because the earliest they could come into force would be the summer.

Blinder's relative optimism was echoed by the other members of the panel, which included Merrill Lynch economist and former IMF research director Jacob Frenkel, and Ken Courtis, vice-chairman, Asia at Goldman Sachs.

Courtis pointed out that it's not just in the US where growth is slowing, and that all the economies in the G7 were coming off the boil. He said the real worry is Japan, where "the country has spent a decade digging itself into a hole." Courtis questioned whether Japan possesses the political will to effect the necessary changes in its structures to get the country back on track.

graphicFrankel said Canada and Mexico would feel the most heat from the lacklustre US, but that the global impact would be limited to 2001, with 2002 "a much more sensible year."

US Federal Reserve chief Alan Greenspan recently cut interest rates by half a percentage point, and the Fed is widely expected to make another similar move at its next meeting on January 31.

Greenspan is expected to give a further indication of his thinking on the future of the US in testimony later Thursday to the Senate budget committee in Washington.

Princeton's Blinder told reporters Bush's tax cuts would play a major role in the Fed boss's thinking, although he's unlikely to want to articulate his views in public.

Although the European economy, particularly Britain, has become less dependent on trade with the US over the past decade as inter-European trade has expanded what happens across the Atlantic still has an impact in Europe, the panel agreed.

The European Central Bank and the Bank of England both recently decided to leave their key interest rates unchanged. graphic