A top executive at Caterpillar Inc., the US heavy equipment maker, said he believes 2007 will be a year of "significant slowdown" in the US housing market.

But Jim Froeschle, the general manager of Caterpillar's strategic support group and the company's in-house economist, said he was optimistic any effect the real-estate slowdown had on the wider economy would constitute a momentary pause in US growth rather than the beginning of a prolonged slump.

The housing slowdown is one of two "pockets of acute weakness" Mr Froeschle said Caterpillar is girding for in the coming year, one in which it has already warned it expects to see revenue rise no more than five per cent - and perhaps flatline entirely - after years of double-digit gains. Caterpillar makes a variety of earth-moving equipment used by builders.

Speaking at a presentation for analysts at the company's large engine factory last week, Mr Froeschle said the United States would experience a "significant slowdown" in the housing market in the coming year. He also warned that new clean-air rules governing on-highway diesel engines that take effect in 2007 would make that business - an important niche for Caterpillar - "a clear area of weakness".

The reason is that many trucking companies are refreshing their fleets this year, ahead of the new rules, which will require expensive new engines. That's pulling sales forward - but it is also widely expected to result in a sharp drop in sales next year.

Even so, Mr Froeschle said Caterpillar was optimistic that the worldwide economic recovery had "lots of legs left" and that the current environment - low inflation, low interest rates and strong corporate profits, among other things - represented a "near ideal climate" for companies like Caterpillar.

He predicted that most of the world was poised for faster growth over the next few years than it experienced either in the 1990s or the first half of the current decade.

But he cautioned that Caterpillar's rosy view was predicated on the assumption that the US Federal Reserve would begin to cut interest rates in 2007.