WASHINGTON, April 30: US Federal Reserve chairman Alan Greenspan said on Wednesday the US economy is set for a post-war rebound but the outlook is foggy and business nerves are an obstacle.

“I continue to believe the economy is positioned to expand at a noticeably better pace than it has during the past year, though the timing and the extent of that improvement remains uncertain,” he said.

Six weeks after the first shots of the Iraq war, economic readings were mixed, said the 77-year-old Greenspan, who just eight days ago underwent surgery for an enlarged prostate.

“Unfortunately, the future path of the economy is likely to come into sharper focus only gradually,” the powerful central bank chief told the House of Representatives financial services committee.

“In the meantime, we need to remain mindful of the possibility that lingering business caution could be an impediment to improved economic performance,” he said.

The US economy grew at a sluggish annual rate of 1.6 per cent in the first quarter of 2003, latest government figures show. US households seemed now to be less apprehensive, Greenspan said, a day after a Conference Board survey found consumer confidence took the biggest leap in 12 years in April as US forces seized Iraq.

Businesses were not showing the same improvement in tone, however, he cautioned, and the growing queues of new job seekers suggested companies were meeting tepid demand without hiring more workers.

The outbreak of Severe Acute Respiratory Syndrome (SARS), meanwhile, had pounded US air and tourism industries and posed an unknown risk to supplies to US factories from Southeast Asia, he said.

“We know it has a had a very major negative impact on air transport, obviously, vacations — all aspects of the types of holiday — parts of our economy, which rest on travel and visits.”

Further, US manufacturers used sophisticated “just-in-time” supply techniques, in which factories receive parts from Southeast Asia exactly when they are needed without building large stockpiles.

“If the production part began to be eroded by absenteeism or other issues, which would contain production, it could feed back into the United States through the just-in-time processes,” Greenspan said.

“To date there is just no evidence of that,” however, he added. Most forecasters expected a rebound in US economic activity in the second half of this year, Greenspan noted.

Business investment may get a boost from a recovery in financial markets, the end of a huge run-up in corporate debt risk premiums, and a decline in world oil prices, he said.

Households also were likely to welcome lower energy bills and the still-favourable mortgage and credit interest rates. Amid heightened global caution over the threat of deflation, Greenspan cast a wary eye at prices.—AFP