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Analysts say reconstruction should lift US growth by Q4

US growth will suffer in the immediate wake of Hurricane Katrina but is likely to benefit by the end of the year from rebuilding efforts.

Oil prices surged to over $70 a barrel after 10 oil refineries on the Gulf of Mexico coast, representing 10 per cent of the US’s refining capacity, were shut down, forcing up petrol pump prices by 50 cents to over $3 a gallon in some areas.

Analysts expect this to dent consumer confidence and spending as national savings levels are low.

New Star investment manager Tim Chesterfield says GDP forecasts have been cut by 0.5 per cent for the second half of this year. He believes the temporary disruption to refining capacity will directly affect the cost of doing business in the US, meaning that unemployment will rise.

Tilney American growth manager Jane Drake says: “The economy will take a beating in quarter three but it is likely to recover in the fourth quarter as rebuilding takes place.

“Construction industry prices are already doing well for companies likely to ben- efit from the reconstruction effort. Reduced consumer spending will also help to ease the US trade deficit.”

Royal London Asset Management economist Ian Kenohan says: “There will be a short-term hit to consumer confid- ence as gas prices rise sharply but in the medium term the area will have to be rebuilt and this will give a boost to economic activity once the immediate humanitarian crisis is over.”

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