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EDITIONS
 Friday, 20 December, 2002, 15:59 GMT
Global tension 'is hurting growth'
Federal Reserve Chairman Alan Greenspan
Greenspan: The US economy has been in a 'soft patch'
The United States economy is showing tentative signs of recovery, the central banker of the world's largest economy has said.

Any significant fall in global political tensions would boost investment and spur growth, said US Federal Reserve chairman Alan Greenspan in a speech to the Economic Club of New York.

In recent months, fears of a Middle East war have led to volatile stock markets and oil prices. Mr Greenspan did not specifically mention Iraq, which is being investigated by United Nations inspectors checking for illicit weapons of mass destruction.

The US central bank has cut interest rates 12 times since the start of 2001 to bolster consumer spending and keep down borrowing costs for industry.

'Soft patch'

After leaving rates steady for several months, the Federal Reserve surprised economists by slicing another half of one percent off interest rates in November, to 1.25%.

The medicine appears to be working, though it remains too soon to be certain, according to Mr Greenspan.

The latest GDP figures released on Friday confirmed that the US economy grew at an annual rate of 4% during the July to September period.

But growth is expected to have slowed sharply during the last few months of the year.

Since November, the "US economy has been working its way through a soft patch," Mr Greenspan said. "And that patch has certainly been soft."

He said uncertainties about the economy had made companies reluctant to hire workers or make big investments, thus hampering recovery.

But there are signs of growing business confidence and a pick up in investment, said Mr Greenspan.

Firmer picture

"New orders for capital goods equipment and software, after falling sharply over the preceding two years, have stabilised....an improvement, to be sure, but not necessarily the beginnings of a vigorous recovery."

Mr Greenspan said there was little evidence of a risk to growth from falling prices, something many economists have recently speculated could squeeze profits.

"The United States is nowhere near sliding into a pernicious deflation."

If such a risk emerged, he said, "options for an aggressive monetary policy response are available".

Mr Greenspan also said he did not believe the rapid growth of exports from low-wage China was creating deflation around the world, as some economists have suggested.

Of the threat of war in the Middle East, he said: "Any significant fall in the current geopolitical and other risks should noticeably improve capital outlays, the indispensable spur to growth."


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

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