MercoPress. South Atlantic News Agency

US economy “sluggish”

Federal Reserve chairman Alan Greenspan in his twice yearly speech to Congress said the central bank was cutting its 2003 growth estimate for the United States economy by 0,75 percentage point, to between 2,5% and 2,75%.

In the previous February presentation before the House of Representatives Mr. Greenspan had forecasted 3,25% and 3,5%.

The Federal Reserve Monetary Policy report indicates that unemployment will remain high, between 6 and 6,25% until the end of the year. Last June the jobless rate reached 6,4% the highest since April 1994.

This week the White House revealed that the federal budget is expected to reach 455 billion US dollars in 2003 and possibly 475 billion next year.

Mr. Greenspan described economic activity in the first half of 2003 as "sluggish" blaming the war on Iraq and business and consumer reluctance to invest, hire and spend. However the Federal Reserve expects economic expansion to "accelerate in the second half of 2003 and to gather momentum in 2004".

"If, and as we strongly expect, the growth rate will be picking up in the months ahead and rising above the relevant rate of productivity, then clearly increased work forces will be required to meet the increased growth"

Regarding interest rates Mr. Greenspan said a further substantial cut was possible to guard against any destabilisation and to help fuel a faster economic recovery.

Mr. Greenspan anticipated interest rates would stay low "as long as it takes" adding that the Monetary Policy Committee could adopt "new substantial flexibilisations" if these actions are judged necessary.

When questioned about the latest budget deficit figures, an issue that has become highly contentious for Republicans and Democrats, Mr. Greenspan said it was an issue that "mattered a great deal", adding that "I trust recent numbers will push government more and more to a stable fiscal outlook".