World Still Dependent on Us Economy, Says Bush Adviser

The idea that the rest of the world can "decouple" itself from the slowdown affecting the United States is unrealistic, the head of president George W Bush's economic advisory team said today.

Ed Lazear, chairman of the Council of Economic Advisers, said that the idea of decoupling would only be realistic if the US' share of the world economy had fallen and if international trade flows dried up.

But, he said, the giant US economy still accounts for 30% of the world total and trade flows have increased in recent years.

"It is difficult to argue that the rest of the world is less connected to the US and not more connected," Lazear said at a conference of the Organization for Economic Cooperation and Development in Paris.

Some economists have argued that the world economy is less dependent than in the past on the fortunes of the US economy because of the rapid expansion of economies such as China, India and Brazil.

Lazear hinted that the half-year forecasts his council would release later this month would be weaker than those made in November by acknowledging that most other forecasters, including the OECD, have reduced their forecasts in the interim.

But he insisted the slowdown was not a recession and that the US would pick up later this year and in 2009 thanks to the Bush administration's tax cuts and the sharp reductions in interest rates from the Federal Reserve.

"These are tough days for the United States but the growth (slowdown) is a temporary phase,"

He said he was also hopeful that the worst of the credit crunch may be over, although admitted this was highly uncertain.

"We're starting to see the indications of enhanced health in credit markets,'' he said.