February 10, 2008	Sunday	Safar 02, 1429

WASHINGTON, Feb 9: A $150bn economic stimulus plan approved by the US Congress will give a shot in the arm to a lagging US economy, possibly mitigating the current downturn, analysts say.

President George W. Bush is due to sign the measure next week, clearing the way for tax rebate checks to be sent out in the coming months. The measure also includes business tax breaks aimed at stimulating investment.

Economists are divided on the overall impact of the measure. Most say it can help boost critical consumer and business spending, but not until later this year. Some call it an election-year gimmick.

Peter Kretzmer, senior economist at Bank of America, said the plan “will provide a boost to consumer spending and business investment,” but added: “It will not, however, solve housing’s problems.”

“At best, it will provide a temporary boost to consumer spending and aggregate demand,” Kretzmer said in a note to clients.

“Some estimates suggest that spending may rise approximately $40 billion over several quarters, with the residual of the rebates used for debt repayment/savings.

“Because of the temporary nature of the fiscal stimulus package, its ‘multipliers’ in terms of boosting employment and investment spending are likely to be modest.”

Backers of the plan say tax rebate checks of up to $600 for individual taxpayers and $1,200 for couples, plus extra for dependent children, could charge up consumers pressured by sinking home prices and tight credit.

Ethan Harris, senior economist at Lehman Brothers, said the rebate effort “should act like a well-timed shot of caffeine for the economy,” but with a “payback” after the effect wears off.

“The rebate comes at an opportune moment,” Harris said in a research update.

“Our forecast assumes that in the absence of the rebate the economy would go into a shallow recession later this year, followed by a very weak recovery in 2009.”

Harris said that because the stimulus will wear off, he sees “a ‘W’-shaped recovery”.—AFP