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U.N. Report Predicts 2.6% Growth But Warns of Economic Risks for ’03

GENEVA — The U.S. economy is projected to grow by 2.6 percent in 2003, up from this year’s projected level of 2.4 percent, according to a report by a United Nations economic agency.<br><br>But the study by the 55-member country U.N....

GENEVA — The U.S. economy is projected to grow by 2.6 percent in 2003, up from this year’s projected level of 2.4 percent, according to a report by a United Nations economic agency.

But the study by the 55-member country U.N. Economic Commission for Europe, which includes the U.S., warned there are several risks to the outlook, linked to the legacy of the boom years. The levels of private debt accumulated during the second half of the Nineties “will have to be reduced sooner or later,” it said.

As a result, the report said U.S. households may be compelled to make a larger increase in their savings than is currently forecasted, “with concomitant adverse effects on consumer demand, business profits and fixed investment.”

For the 12 “Euro zone” economies, the agency forecasted growth next year to reach 1.9 percent, up from this year’s 0.9 percent gain. It urged a more expansionary monetary policy to offset the dampening effects of the appreciation of the euro and the fall in equity prices.

The agency said the drop of the dollar in foreign exchange markets appears to have been caused “by doubts about the relative strength of the U.S. recovery and concerns about business profitability, as well as corporate governance scandals.”

The study said concerns about the possibility of a military conflict with Iraq may have also played a role. However, ECE economists caution that “in view of the domestic and external imbalances in the U.S. economy, there is the dilemma that any domestic demand-led recovery would risk being short-lived because of the adverse implications for the external deficit and increased risk that foreign investors would be unwilling to continue to finance it.”

Brigita Schmognerova, ECE chief, said: “The longer the external adjustment is delayed, the greater the possibility of disruptive changes in capital flows.”

This story first appeared in the November 19, 2002 issue of WWD.  Subscribe Today.