- The Washington Times - Friday, February 9, 2001

Economic growth has stalled in the United States, raising concern that the bug Americans caught this winter will turn into a worldwide epidemic.
The International Monetary Fund and most private economists expect the world economy to keep growing this year, even if the U.S. economy dips briefly into recession. The IMF last month cut its forecast for world growth this year to 3.7 percent to reflect high energy prices but has not revised the figure to take into account the sharp U.S. slowdown.
"The pace of deceleration in the United States in recent months may have surprised all of us," said IMF Managing Director Horst Kohler, but he predicted a quick turnaround in the United States with little impact on its trading partners.
"Asia will be affected by the U.S. slowdown," he said, "but overall I do not expect the Asian recovery to be derailed." The IMF also expects growth in Europe to stay around 3 percent.
Many private economists are more pessimistic. They point out that the United States has contributed between one-quarter to one-half of world growth ever since the Asian crisis struck in 1998. No one is sure what will happen if the U.S. economy falters.
"The U.S. economy is in trouble, possibly the world economy as a consequence," said Allen Sinai, president of Primark Decision Economics. He said both the Federal Reserve and Congress must come to the rescue of American consumers to prevent full-fledged recessions here and abroad.
U.S. consumers are famous around the world for spending freely on imported goods with few restrictions on trade an open-door policy that began after World War II as a way to help rebuild economies devastated by war in Europe and Japan.
The result has been lopsided trade deficits with nearly every region from Europe and the Middle East to Japan and East Asia. The yearly deficit reached a breathtaking $426.2 billion in November a legacy of the 1998 crisis, when nations from Asia to Latin America looked to the United States to pull them out of recession.
The monthly deficit in November provided a glimpse of what may be coming, however. It ebbed slightly to $33 billion as imports declined for a second month signaling that U.S. consumers finally may be pausing to catch their breath after a decadelong spending spree that erased their savings.
A sharp drop in consumer confidence in recent weeks prompted the Fed last month to slash interest rates by a full percentage point in a dramatic effort to stave off recession and revive consumer spirits.
Mr. Sinai said Congress must move quickly, too, to reduce federal tax collections that have risen to record levels over 20 percent of the gross domestic product, helping to deplete personal savings to record lows.
Income-tax cuts help to fuel spending when consumers are retrenching to rebuild their savings and pay down debt. Taxpayers can be expected to spend most of their tax cuts not only on U.S. purchases but also on imported goods, helping keep the world economy afloat, said Mr. Sinai.
With aid on the way from the Fed and Congress, Stephen Potter, economist at Goldman Sachs & Co., said he does not expect U.S. consumers to give up the ghost. Rather, they will keep spending this year, enabling the U.S. economy to rebound and achieve 2 percent growth this year after turning down modestly in the first quarter.
"Given this central forecast for the U.S., we see only a moderate risk that the rest of the world will tumble into a recession this year," he said, predicting growth of 2.6 percent in Europe, 2.4 percent in Japan, 5 percent in Russia and 7.5 percent in China.
European consumers are not as overextended as Americans, and European businesses have avoided the overinvestment in technology that has led to a bust in telecommunications and computer sales in the United States, he said.
Even Japan, which barely emerged from recession with a 1.4 percent growth rate last year, should avoid recession despite its heavy reliance on exports to the United States, thanks to a building recovery in consumer confidence and demand, he said.
But things could go awry for the rest of the world, Mr. Potter said, if the United States falls into a full-fledged recession like the 1990-91 downturn, with consumer and business spending dropping substantially for the first half of 2001.
"While neither Japan nor Euroland would suffer an outright recession," they would see anemic growth, he said. Growth in the world economy would drop to about 2 percent the lowest since 1982, when the United States was in deep recession.
Some analysts are downright gloomy because many nations remain dependent on the United States for growth.
Thomas F. Carpenter, chief economist of ASB Capital Management, sees an "orchestrated economic slowdown" that will hit hardest on economies in Asia and Latin America that have lifelines to the U.S. economy.
"Japan never undertook the structural reforms that were necessary to boost domestic demand," he said. "The world's second-largest economy remains trapped within a suffocating financial web of financial system rot, generalized deflation and falling domestic demand."
The rest of Asia, despite financial reforms imposed by the West during the Asian crisis, "has made little or no progress since 1998 in transforming itself into something other than an export-dependent platform," he said. "Non-Japan Asia could not be relied upon as an independent and self-sustaining prop to growth."
Latin American economies, meanwhile, already are imploding, he said. Venezuela and Argentina are teetering on the brink of recession, and growth in Mexico has slowed precipitously.
"What has become clear in retrospect is that these regions were simply extricated from their dire 1998 financial predicaments by the dynamic pull of the U.S. economy," he said.

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