Paulson predicts US economy will pick up by end of the year

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The Independent Online

The US Treasury Secretary, Henry Paulson, signalled yesterday that the worst may soon be over for the American economy.

As the price of a barrel of oil tested fresh highs once again, and acknowledging the "headwinds" to growth coming from rapidly rising global energy and food inflation, Mr Paulson nonetheless said: "We have a resilient economy, we have good productivity, we have good efficiency. I think there's a very strong possibility that we will be growing at the end of the year, we will have stronger growth at the end of the year than we have right now." That, however, could still be relatively weak, and Mr Paulson continues to be more worried about growth than inflation.

"Our biggest concern is the downturn. There's no doubt that high headline inflation numbers are a real concern to Americans, but core inflation is relatively contained and my biggest focus is on the downside risks, which are housing, oil prices and what is going on in the capital markets."

The US economy grew at an annual rate of a mere 0.6 per cent during the first quarter of this year, and Mr Paulson warned that below-trend growth could be a fact of economic life for some time: "I think the oil prices are a strong headwind and at this level, they have got a high risk that they are going to prolong the slowdown."

Asked by reporters at a press conference also attended by the Chancellor, Alistair Darling, what measures he could take quickly to deal with the oil crisis, Mr Paulson offered little hope: "I don't believe this situation avails itself of quick fixes." He believed "supply and demand" rather than speculation was responsible for the rise in prices. He also supported the role of market forces in setting the pay of bankers and traders. Asked about the £50m package received by Charles Prince after he was forced out in the wake of losses at Citigroup, Mr Paulson, who previously headed the Wall Street bank Goldman Sachs, said: "No one wants to see high compensation for failure. It is a big issue and it should be an issue."

He added: "This is not something in our judgement that should be legislated or regulated. This is a matter between boards and shareholders." Closer to home, Mr Darling repeated his call for pay restraint in the face of higher inflation. The Chancellor said it was crucial that "we don't allow inflation to become entrenched into our system as we saw 20, 30 even 10 years ago."

He said the UK economy would "continue to grow", but declined to say by how much.

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