Worse to come for US economy

The US economy, which officials have admitted has entered recession, will perform even worse next year than in 2001, a leading economic group has said.

America's economy, the world's biggest, will grow by 0.75% next year, the Organisation for Economic Cooperation and Development (OECD) said.

Rising unemployment and continuing lay-off announcements are dampening confidenc

Lynn Franco, Conference Board

This figure compares with an estimated 1% expansion this year, the organisation said.

The forecast comes a day after an official panel ruled that the US had entered its first recession in a decade, ending the country's longest ever period of economic expansion.

But the OECD predicted that, despite the country's weak performance next year, the period of actual recession "should prove short lived".

And a climate of low inflation and continued improvements in productivity would see the US economy recover to expansion rates of 3.5-4.0% in 2003, as "pent up consumer demand is unleashed".

The OECD, dubbed by some observers as the "rich nations club", represents the world's 30 most developed economies, selected mainly on the basis of their commitment to free markets and democracy.

Shares fall

The forecast came within hours of a leading US business group revealing that consumer confidence had fallen for its fifth successive month.

The data, from the Conference Board, undermined hopes of an imminent end to the US downturn, sending stocks sharply lower in early trade.

The Dow Jones Industrial Average, which some observers had predicted would break back through the 10,000 mark on Tuesday, ended 110.15 points lower at 9,872.60.

Tax reforms

The OCED called on the US to implement levy reforms to help boost demand, with cuts urged to the top rates for income and estate taxes, which are no longer among the lowest charged within member countries.

"Concerns that reductions in taxation are distributed equally to all should not be the only driving force for future tax reform," Tuesday's report said.

The organisation also called for reforms to regulation of telecoms, air travel and electricity markets.

And it warned against further steps toward protectionism, which hurt economic efficiency and aggravated tensions.

Trouble ahead

The OECD also warned of a further faltering in consumer demand, which the Conference Board said on Tuesday had been hit primarily by concerns over job security.

"Rising unemployment and continuing lay-off announcements are dampening confidence," said Lynn Franco, director of the board's consumer research center.

The board's index figure of 82.2 for US consumer confidence in November compared with 85.3 for October, and was the lowest since February 1994.

And it said that optimism was unlikely to rebound before the end of the year, warning retailers not to hold out for bumper trade over the Christmas period.

The data undermined hopes, raised by much-watched reports from the University of Michigan, that consumer confidence was edging to recovery.