A note of caution about the pace of economic recovery in the United States was sounded yesterday when the managing director and chief economist of UBS Warburg predicted growth would be disappointing. In Hong Kong, George Magnus said he did not expect economic growth in the US would be driven by consumer spending - which had held up during the recession and therefore had no room to grow - or by capital investment from business. The two main components of capital expenditure were equipment and software followed by housing and commercial building structures. Record low interest rates had ensured booming construction, particularly in housing, in the US and Britain, meaning there was little room for growth in the sector. 'But we're not that optimistic we're going to see much more than a modest revival in technology,' Mr Magnus said. 'The recovery is occurring largely because of the turnaround in the inventory cycle. 'Despite all the hype about computer-controlled inventory management, last year the developed economies saw the most savage industrial recession for 40 years.' Now the brighter side of the inventory cycle was emerging as businesses began ordering and producing again. But there would only be a limited recovery in corporate profits. He said fiscal stimulus provided by the US Government had contributed at least 1.75 per cent of gross domestic product on an annual rate, adding that US GDP growth could have reached up to 5 per cent in the first quarter. 'The trouble with these [events] is that they are largely one-off and their impact is likely to fade throughout the year. So what is going to sustain an accelerated recovery?' he said. 'The first part of 2002 will be marked by quite a robust pick-up in output and production which will be because of the turnaround in the inventory cycle, but the probability of sustained follow-through is somewhat questionable.' He said growth rates would decelerate this year and next and forecast a US growth rate of 2.3 per cent this year and 3.2 per cent next year. The deceleration in economic growth in the US would flow through to Europe at about the same time, hitting Japan about two or three quarters later, he said. Mr Magnus predicted a weakening US dollar, which he said was under a political shadow. 'I think the US is probably going to be the first of the currencies to falter, it could be from disappointment about the rate of expansion or concern about the current account deficit.' He said the market was overestimating the extent and timing of interest rate rises in the US. 'The interest rate rise cannot be as negative as the futures market says it will be today,' he said. 'We don't think the Fed will raise interest rates until very late in the year, maybe even at late as November. You may get 25 basis points but no more than 75 basis points, but not the 150 basis points which is being priced in through the futures market.' He said an oil shock could force a double-dip recession in the US, which was a possibility if consumers - which generate 65 per cent of GDP - retreated from spending after such an external shock. 'You could get negative growth without a consumer spending collapse . . . if [GDP] drops to zero. If it's only slightly positive or negative for more than a quarter you could get not only a technical recession but a real recession,' he said.