After the party comes the year 2000 bust

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The Independent Online
THE BRITISH economy will get a pounds 1.7bn boost from extra pre-millennial spending, according to a report published today. But the 1999 boost will be followed by a year 2000 bust, according to another influential economist.

Spending on millennium construction projects, fixing the year 2000 computer bug, New Year celebrations and stockpiling in case of emergencies by households and businesses ahead of 1 January 2000 will all help to stimulate growth this year, the new report from the Centre for Economics and Business Research (CEBR) calculates.

These will more than offset the negative impact on growth of a possible dip in confidence and a credit crunch if banks hold back on making new loans because of the year 2000 problem.

But separately, a leading US economist is warning of the high risk of a serious global recession in the year 2000, largely because of glitches caused by the fact that many computers and embedded microchips could go wrong on 1 January.

Edward Yardeni of Deutsche Bank in New York is predicting a 70 per cent chance of a global recession next year as a result - probably a "serious" recession. "The global financial crisis of 1997-98 may turn out to be a warm-up act for the year 2000 main event," he said.

The US economy too is being boosted in advance by extra spending on information technology to try to sort out the problem.

Mr Yardeni calculates that companies in the S&P 500 index have allocated $10.1bn to year 2000 spending. Among the biggest budgets are those of telecoms companies such as AT&T (at $711m), giant corporations including GM ($586m) and investment banks such as Merrill Lynch ($200m).

For the UK, the CEBR report estimates the net effect of the millennium at a relatively modest 0.2 per cent boost to GDP growth in 1999, or an additional pounds 1.7bn in spending. Even so, this could be enough to safeguard the economy from outright recession.

Greater than usual spending on construction, funded by Lottery grants for capital projects, and parties will be one of the biggest effects. So will the IT spending on top of normal budgets.