It could take another year before the United States economy shows the first signs of overall recovery, according to a leading economist. Edward Graham, senior fellow at the Washington-based Institute for International Economics, said: 'I wouldn't be astounded if it took 15 months, five quarters. 'I've heard people say they expect [recovery] will begin in the first quarter, but I think this is unduly optimistic.' Mr Graham said the most important issue was whether the productivity increases seen in the late 1990s from the information technology revolution were 'a mirage or whether there's really something there'. The institute, which is non-partisan, believed most of these productivity gains would continue to be felt because of 'the increase in business efficiency in old business, not new dotcoms'. However, there were sharp divisions within the institute about the extent of consumer and business confidence in the US. Mr Graham admitted he was 'a little startled' by the strength of recent retail sales figures in the US, which could have been affected by pre-Christmas buying and cheap car financing. 'However, most of the downturn has not be the fault of consumer spending but business spending, that has been really down,' Mr Graham said. Even though it usually took three to six months for interest rate cuts to filter through 'the early signs are a little discouraging'. Mr Graham said the extent to which Hong Kong could integrate its economy with the Pearl River Delta would determine how well it withstood competition from Shanghai as a financial centre for China. 'Of course, in the absence of real things happening, finance doesn't have a lot of meaning,' he said. Hong Kong could also be threatened by attempts by Taiwan to develop itself into a location for regional headquarters, using the argument that 'Hong Kong is getting too close to China'. 'I don't think companies are buying it, not yet,' he said, noting that the pro-independence stance of [Taiwanese President] Chen Shui-bian was discouraging foreign business from locating to Taiwan because he was perceived to be provoking Beijing. Mr Graham argued at a regional economic conference last week that the best thing Japan could do for the international economy was open up its banking sector to foreign competition in an effort to solve the problem of non performing loans. 'It is legitimately an international, and not a purely domestic, issue, just as Japan made similar claims back in the 1980s about the US vehicle industry,' Mr Graham said. Massive investments made by Toyota, Nissan and Honda in the US industry had forced consolidation in the sector and averted an economic crisis. However, the problem was that the nine-year recession in Japan 'hasn't really dug too deeply or adversely affected anybody to a really great extent'. 'So in 1991, when Japan went into this stasis, their lot was pretty good, and nine years later it hasn't got much better but it hasn't got a lot worse, either,' he said. 'Over time there is going to be a significant diminution in living standards [in Japan].' Mr Graham, who has specialised in international investment and competition policy, said that because the issues of competition policy and foreign investment were postponed at the World Trade Organisation ministerial meeting in Doha last month until the next ministerial meeting, it was almost an admission that they would not be negotiated under the Doha trade round, which is aiming to hammer out a new world trade deal by the start of 2005. 'No big negotiating round has ever been done in three years,' he said. He said that while China had indicated it wanted to be a bridge between the developing and the developed world as a member of the WTO, 'on some issues it would be very much aligned with the developed countries'. This was because China had gone further than other developing countries by agreeing to open markets to foreign companies under the WTO rules, such as trade-related investment measures, and the banking sector under the financial services agreement. Mr Graham said globalisation had brought 'a net benefit to the world' on the whole but it was clear 'some people have gained substantially, some people have gained little, if any, and some people have been made worse off'. 'We think the gains outweigh the costs, but unfortunately the costs are borne by human beings who share none of the gains,' he said.