WASHINGTON: US Treasury Secretary John Snow said last week the US economy seemed on track for steady growth, and he expressed no concern about the US dollar's steep plunge against other currencies.

The US treasury chief, out of sight over the Christmas holidays, claimed the Bush administration's tax cuts were helping ignite growth that was showing up in rising industrial output, retail sales and fewer claims for unemployment pay.

"These recent encouraging signs suggest a sustainable economic recovery, building on a robust third quarter, which saw real GDP (gross domestic product) growth of 8.2 per cent, the best in nearly 20 years," Snow said in an address to the US Chamber of Commerce.

"We're going to look for a nice strong fourth quarter when it gets reported here soon," Snow added, referring to the first look at fourth-quarter GDP data.

That information is scheduled to be issued by the Commerce Department on January 30.

With the US dollar plunging in value against key currencies, such as the euro and Japan's yen, in recent weeks, Snow was asked by reporters whether he was concerned about the euro's sharp rise, which some fear could choke off an European recovery.

The US policy was unchanged in support of a strong dollar, whose value was set by markets, he said.

That implied scant likelihood Washington will be willing to intervene to support the currency.

Markets rule

"A strong dollar is in the US interest, and, of course, we believe the value of the currency should be set in open, competitive markets," Snow said.

The US treasury chief will join fellow finance ministers and central bankers from the Group of Seven - the United States, Britain, Canada, France, Germany, Italy and Japan - in Boca Raton, Florida, on February 6-7 for a regular session that always includes a discussion on currency.

A hefty agenda already appears to be shaping up for the Florida meeting, including accelerated forgiveness of Iraq's debts and global recovery prospects.

Therefore, the Bush administration might want to head off substantive talks on currencies.

Snow is expected to highlight the US recovery in coming weeks and to claim credit for Bush administration tax cuts in igniting it, ahead of November's presidential elections.

Snow said last Wednesday the tax cuts must be made permanent, laying down a marker against Democrats who claim the revenue losses must be staunched to help get budget deficits under control.

"Let me be perfectly clear: Failure to make the tax relief permanent would be a huge mistake, and would put our recovery in jeopardy," Snow said.

ECB confident

The European Central Bank (ECB) was widely expected late last week to keep euro zone interest rates unchanged.

The bank is confident economic recovery is strong enough to bear the burden of the soaring euro.

Policy-makers so far have not sounded worried about the rallying euro, which has gained 6 per cent versus the dollar since the beginning of December.

The euro is pressuring inflation and giving the central bank time before possibly tightening policy.

But the ECB might find itself in a bind if the euro rises further and causes problems for the export-dependent economy, analysts suggest.

Businesses are already complaining the currency's strength is making it harder to sell their products abroad.

"For the time being, it is not a major problem because ... there is lots of compensation by the stronger-than-anticipated global recovery, which is helping exports along," said Christa Aranda-Hassel, economist at Credit Suisse First Boston (CSFB) in London.

"But if the strength continues, and we start breaking pain thresholds for the industry ... the clear risk is we'll have a recovery which is export led, (but) stops in its tracks before having spilt over to domestic demand."

Further euro gains might enable the ECB to wait longer before it raises its benchmark refinancing rate from a record 2-per-cent.

Economists suggest it will wait to do so, at least until the second half of this year.

Financial markets have also eased their aggressive bets on a quick rate hike, and are now pricing in only 40-per-cent chance of a quarter point rate hike by the end of June.

Some economists predict rates will come down again.

"It is of the kind of magnitude which I believe puts a rate cut firmly on the agenda already at this stage, though I wouldn't describe a probability higher than one in three for this meeting," said Klaus Baader with Lehman Brothers.

Assuming a euro level of US$1.17 - a level which the single currency has already exceeded by more than 8 per cent - in December, the ECB painted a picture of a gradually recovering economy and dwindling inflation.

But the stronger-than-expected currency means both growth and inflation might pan out lower than expected, and the 12-nation, single-currency bloc might not get close to its cruising speed towards the end of 2004.

Agencies via Xinhua

(Business Weekly 01/13/2004 page6)