Earnings worries have caught up with the United States equity market as the depth of the Asian crisis and its impact on corporate performance become more evident, according to Merrill Lynch's chief economist. Bruce Steinberg said the possibility of further damage to non-Asian markets was also increasing. 'Still in my view any US correction may be helpful,' Mr Steinberg said. This was because it would relieve worries about over-heating and concerns about the 'non-existent' asset bubble. So far this year, the US share market has risen 12.82 per cent on the back of moderate economic growth and low inflation. 'Even if there is a correction, any correction will be muted through interest rate developments,' Mr Steinberg said. As for the first time Americans have more of their wealth in equities than in real estate, 'any equity market correction will help to cool down domestic demand', he said. Gross domestic product growth was 4.8 per cent in the first quarter, compared with 3.7 per cent in the final quarter of last year. Mr Steinberg said Asia 'took a huge toll on [US] growth' in the first quarter. He said it would be much slower during the remainder of this year as net exports fell and inventories rose. He estimated growth would be about 1.5 per cent in the second quarter and 'not much more than 2 per cent' during the second half. Continuing problems with Hong Kong's and Malaysia's economies meant that Asia's economic contraction was expected to last 'well into 1999'. 'Reality is turning out a lot worse than people expected six months ago,' Mr Steinberg said. Foreign buying of Japanese assets, as highlighted by the Travelers Group - the US financial conglomerate bought a stake in Nikko Securities - would be a major spur to the recovery but would take time. In the meantime, Japan's economy would continue to slide, with the yen headed to 150 to the US dollar. 'The ongoing turmoil in Asia shows markets are far from stabilising,' Mr Steinberg said. He said that this created the risk of other emerging economies, particularly Russia and Brazil, becoming further embroiled. On balance, Merrill believed that Latin America would be able to hold together. For the US economy the world scene would result in continued strong demand for the dollar and US treasuries, but deterioration in trade. Mr Steinberg expected the trade slump this year to shave 1.5 percentage points off GDP growth. Growth is expected to moderate this year. Last year, the economy generated 3.2 million jobs. Mr Steinberg said the year-on-year interest rate of 1.4 per cent was the 'lowest it has ever been at this stage of the cycle - there is no sign of any pressure'. He dismissed concerns that a housing boom could drive up inflation. 'The market is strong . . . but is not likely to get much stronger,' he said.