US under threat of double-dip recession: Gloom on the economic front as American growth slows and German economy faces worst crisis since war

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The Independent Online
HOPES for vigorous economic recovery in the US took another bruising yesterday after the release of government figures showing that economic growth in the first quarter reached a rate of only 0.9 per cent.

No other period has produced such anaemic growth since the final three months of 1991, when the US was first emerging from recession. It contrasts sharply with the 4.7 per cent growth rate in the final quarter of last year, when consumer optimism briefly soared.

This latest figure confirms the widely held belief that in the foreseeable future the recovery will remain thin and insufficient to generate any significant number of jobs. At worst, it raises the spectre of a 'double-dip' return to recession.

Exports over the first quarter also fell off sharply, causing the national trade deficit in goods to shoot up by 12 per cent to dollars 29.07bn - the biggest trade gap in more than four years, according to the Commerce Department.

Ron Brown, the Commerce Secretary, said that the grim news 'confirms our view that the economy is not growing fast enough to create new jobs and economic opportunities for the American people'. The new gross domestic product figure was a revision of an earlier, provisional estimate of 1.8 per cent.

The lapse in GDP growth was attributed to a slow-down in growth in consumer spending, which reached only 1.2 per cent in the first quarter in contrast to 5.1 per cent in the last three months of last year, when Christmas spending hit a high.

The fall-off in export performance was a reflection of reduced buying power in Japan and Germany, traditionally two of America's most important markets. Over the first quarter, American exports fell by an annual rate of 2.6 per cent and imports rose by 12 per cent.

The weaker-than-expected figures drove the dollar lower on the foreign exchanges, and prompted the US Federal Reserve to intervene to halt the dollar's slide against the yen.

Analysts said the Fed was also far less likely to tighten monetary policy with the re-emergence of risks of economic relapse.

Sterling also softened further yesterday amid uncertainty over the economic policy of Kenneth Clarke, the new Chancellor. Mild speculation persisted that Mr Clarke would eventually authorise another cut in interest rates from 6 per cent.

The Chancellor's first opportunity to present his approach to policy will come on 15 June, in the Mansion House speech to the City.

Keith Edmonds, of NatWest Capital Markets, said: 'Mr Clarke has not held an economic position, so the markets are asking what he stands for. There will be a period of uncertainty until the speech.'

But sterling's weakness was aggravated by the strength of the mark, following warnings yesterday by three Bundesbank council members that the fall in German rates was over for now. Money was also lured to Frankfurt by renewed pressure on the Spanish peseta ahead of the general elections on 6 June.

The peseta recovered slightly to 79.45 to the mark from an early low of 79.75, but speculation persisted that rates will be cut ahead of the elections.