'Everybody is talking about it,' is the title of a Dresdner Kleinwort Benson report. But few, if any, analysts are prepared to put pen to paper and predict the United States economy will plunge into recession. The Dresdner report explained a reason close to home why economists do not like to commit to the R word. 'Contributing to an unwillingness to predict a hard landing is likely to be a tendency on the part of the majority of professional forecasters not to stick their necks out too much,' wrote a team led by Ian Harwood in London. 'People on both the buy and sell sides have lost their jobs in recent years by being too bearish on the US economy and stock market.' Dresdner did sound some economic alarm bells. Even if the US managed to pull off a soft landing of 2.5 per cent to 3 per cent growth next year, it would have big knock-on effects on the rest of the world, the investment bank said. 'What happens to the US economy is the key global investment issue,' the report said. 'Our estimates suggest that a 1 per cent reduction in the US [gross domestic product] growth rate would reduce global growth by 0.4 per cent.' The end of the 'economic miracle' in the US would halt the strong capital inflows of recent years, sending the US dollar sharply lower. 'Our simulations suggest that a 20 per cent dollar fall would reduce global growth by as much as 0.3 per cent in year one [of a US recession],' Dresdner said. Dresdner pointed to four 'headwinds' which would slow growth next year: high interest rates, high oil prices, a global trade slowdown and the reversal of the stock market wealth effect. The real swing factor, however, was whether the ebullience of the private sector in recent years would hold up in the face of the slowdown. Despite pointing to the risks of a recession and the reluctance of economists to predict it, Dresdner concluded that the US economy could make a soft landing and grow 3 per cent next year. 'This said, there are considerable downside risks, with sharper than expected cut-backs by the corporate sector constituting our primary focus of concern,' the house added in a rider. Axa Investment Managers does things the other way round in a positive investment strategy report this month, which recommends going overweight on equities and underweight on bonds. Axa said a US soft landing would happen, thanks to oil prices falling next year and cuts in US interest rates. But it added: 'Without such changes the probability of a recession is high.' Deutsche Bank also hedged its bets on the US economy in its quarterly World Outlook report, entitled 2001: The Landing is Getting Bumpy. Peter Hooper, Deutsche's co-head of global economics, said US growth next year would be 2.7 per cent, against 5.2 per cent this year. The report has a picture of a skier in mid-air making a dangerous jump, an analogy Mr Hooper used in his commentary for the US economy bidding to make a soft landing. 'To do so, however, will require confidence, a keen sense of balance, impeccable timing and some good luck,' Mr Hooper said. The economist admitted that 'the risks of a crash landing have risen dramatically'. However, Mr Hooper was not yet ready to stick his neck out and make the leap of predicting a recession. Graphic: perf13gbz
