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US economy not out of woods yet: Stiglitz

Nobel Prize-winning economist Joseph Stiglitz flew in the face of optimistic hopes of a robust US economic recovery this year, saying on Tuesday it would fail to reach its full potential in 2002.

"In short there's no end likely this year to this major shortfall of the economy below its potential," Stiglitz said in a speech at Credit Suisse First Boston's annual Asian Investment Conference in Hong Kong.

Stiglitz, former chief economist at the World Bank, said the US economy was technically out of recession, but was only growing at about 0.5 per cent a year -- well below its accepted potential of 3.5 per cent.

"It's not a recession in technical terms, but it is growing at one half of one per cent, a shortfall of three per cent. A three per cent shortfall in US$10 trillion economy is a loss of US$300 billion, US$300 billion that is effectively being mis-spent because we are not using our resources effectively," he said.

Stiglitz's assessment comes a day after upbeat assessments of recovery from major Wall Street investment banks, Merrill Lynch and Salomon Smith Barney.

Both firms boosted their forecasts for US growth and long-struggling corporate earnings on Thursday, two weeks after Federal Reserve Chairman, Alan Greenspan, said economic expansion was well under way.

Merrill Lynch chief economist, Bruce Steinberg, raised his expected growth range for gross domestic product in the current quarter to between 5 per cent and 6 per cent at an annual rate, up from 3.5 per cent to 4 per cent a month ago.

Salomon Smith Barney's economist, Robert DiClemente, hiked his expectation for GDP to rise at an annual 5.2 per cent rate for the first quarter.

The US Commerce Department has revised its GDP numbers substantially, saying the economy grew at an annual rate of 1.4 per cent in the fourth quarter, up from an initial estimate of just 0.2 per cent, leading forecasters to become more optimistic.

But Stiglitz said an overhang of investment combined with relatively high and stable consumption figures that gave no prospect of a surge normally expected to fuel a recovery, were the dual factors that would subdue the recovery.

"While there is a recognition that the US is likely to be technically out of recession, no one is forecasting that the growth will be so robust that it will be able to put back into use the resources that are not being well used," he said.

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