US shows positive signs for economic growth

The US economy has shown signs of an economic turnaround after figures for the last quarter showed that GDP had risen by 2.7 per cent.

It is expected that the rise in GDP will force the US central bank to reassess its somewhat cautious and negative view of the economy. The quarterly figures also reveal consumer spending rose 1.4 per cent since the New Year and for the first time in seven months the unemployment figures fell in a calendar month.

Previous to the speculation over the rise in rates, the Federal Reserve had cut interest rates 11 times in 2001, to achieve a 40-year low of 1.75 per cent. The brighter outlook in the world's largest economy will clearly impact on America's closest European ally, the UK, and the EU. All the economic indicators seem positive as talk turns to economic recovery as Sweden's central bank became the first in western Europe to raise interest rates this year. Despite lying outside the EU, Sweden's move further points out that a general upturn in consumer confidence is not exclusive to the US or UK.

Across the Atlantic, analysts and futures speculators already believe that the Federal Reserve will adopt the official view that the economy is in 'neutral' territory rather than the persistent 'negative' assessment.

While the signs of market recovery are good, US interest rates could yet remain static for some time – with many economists are predicting May or June as the earliest likely date. In the UK, a rate rise may be inevitable though not in the short term as the underlying inflation rate fell back below the government's target in February – making Britain the lowest inflation economy in the 15-nation bloc.

The upturn for the US economy comes amid an ongoing row between the EU and America over steel tariffs. The World Trade Organisation is considering the case, but a ruling is not expected for at least a year. Meanwhile the 30 per cent tariff remains in place and it is estimated that the EU steel industry will lose out to the tune of £2 billion.

Elsewhere, a survey released in the UK by Merrill Lynch & Co, which polled 266 fund managers indicated that 93 per cent felt that interest rises were coming. However those polled felt that any key rate change could draw a halt to equity prices.

(GMcG)