Greenspan says US recession is possible by year-end

HONG KONG - Former US Federal Reserve Chairman Alan Greenspan warned on Monday that the American economy might slip into recession by year-end.

He said the US economy has been expanding since 2001 and that there are signs the current economic cycle is coming to an end.

'When you get this far away from a recession invariably forces build up for the next recession, and indeed we are beginning to see that sign,' Mr Greenspan said via satellite link to a business conference in Hong Kong.

'For example in the US, profit margins ... have begun to stabilize, which is an early sign we are in the later stages of a cycle.' 'While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008 ... with some slowdown,' he said.

Mr Greenspan said that while it would be 'very precarious' to try to forecast that far into the future, he could not rule out the possibility of a recession late this year.

The US economy grew at a surprisingly strong 3.5 per cent rate in the fourth quarter of 2006, up from a 2 per cent rate in the third quarter. A survey released Monday by the National Association for Business Economics showed that experts predict economic growth of 2.7 per cent this year, the slowest rate since a 1.6 per cent rise in 2002.

Mr Greenspan also warned that the US budget deficit, which for 2006 fell to US$247.7 billion (S$380 billion), the lowest in four years, remains a concern.

'The American budget deficit is clearly a very significant concern for all of us that are trying to evaluate both the American economy's immediate future and that of the rest of the world,' he said via satellite at the VeryGC Global Business Insights 2007 Conference.

Mr Greenspan also said he has seen no economic spillover effects from the slowdown in the US housing market, and added that the global economy seems 'benign and stable.' 'We are now well into the contraction period and so far we have not had any major, significant spillover effects on the American economy from the contraction in housing,' he said.

US housing starts are down 'quite sharply,' which is 'implicitly creating a reduction in the very high inventories of new unsold homes,' he said. -- AP