PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | CLIPS | 2001 | PBEC CHIEF UPBEAT

PBEC chief upbeat on US economic outlook By Suzanne Harrison South China Morning Post Tuesday, March 20, 2001 The expected interest-rate cut in the United States today coupled with imminent tax breaks will help that country's economy head north in just several months. The US economy has reached saturation point, and although "it is time to pay the piper", there is no need to panic, secretary-general of the Pacific Basin Economic Council (PBEC) Robert Lees said. Mr Lees in Hong Kong yesterday as part of a regional tour said he expected Federal Reserve chairman Alan Greenspan to cut rates by 50 basis points instead of by the much-touted 75 basis points. "What we have got now is belt tightening across the board. Americans have been spending like drunken sailors. It [the rate cut] shows the Fed is somewhat under control," he said. "With the tax cuts [proposed by President George W. Bush] ... I think most people are saying there will be three or four months of ratcheting down before the economy moves up again." A stock-selling spree in the US and Asian markets started earlier this month amid concern the world's growth engine was facing recession. Industrial production in the US fell for a fifth consecutive month last month. Leading US companies such as Intel have recently announced significant lay-offs. Still, housing starts last month were virtually unchanged from January's robust rates and there are reports car-makers are planning to increase production. Yet this has not helped global markets. Mr Lees hopes the Fed does not go for a 75-basis-point cut or more, saying too much of a decline in the funds rate of 5.5 per cent could weigh further on investor sentiment. "What they [analysts] are doing now is getting expectations high and if Greenspan comes in and says 50 basis points, then that could have a negative effect," he said. "I think fundamentally, the US is still the market and will be the market ... the [negative] situation is short-term. The economy is overheated, but I do not think anyone I know is predicting a deep recession." Mr Lees' predictions were supported yesterday by analysts at Morgan Stanley Asia and SG Securities who forecast conservative rate cuts of 50 basis points. For Asian economies, the US slowdown, coupled with the Japanese's economy's demise, means the news is not good. Export-reliant Asian countries will lose out as demand from the US wanes. However, Mr Lees agreed China would be a guiding light in a declining environment. "Asia has come a long way since the Asian crisis started in 1997, but there is still too much reliance on one market [the US]. I thank goodness for a vibrant China," he said. "They have got to keep the renminbi [yuan] as strong as they have been and it needs to become a member of the World Trade Organisation."