US Treasury head: UK-style cuts will hinder recovery

Timothy Geithner, the US Treasury Secretary, painted the world a reassuring picture of a recovering global economy yesterday, but warned that it was too early to begin cutting budget deficits – a message that is in stark contrast to the approach taken by the British Government.

"There is much more confidence now that we've got a sustainable expansion," said Mr Geithner, speaking to the World Economic Forum in Davos, shortly before statistics were published showing that the pace of the recovery in the US quickened during the fourth quarter of last year. "It is not a boom, it's not an expansion that is going to result in a very rapid decline in unemployment, but there is more confidence now that the acute part of the crisis is behind us."

However, Mr Geithner warned that the recovery was fragile and it was too early to focus on reducing countries' budget deficits: "You've got to make sure that you don't hurt the recovery and take too much risk that you damage the early expansion by shifting too prematurely to substantial restraints," he said.

Mr Geithner said that after six quarters of economic growth in the US, the recovery there was becoming entrenched. "Even the people who thought there was a risk of a period of below-trend growth, or of slipping back into recession, now seem to be more confident," he said.

And he rejected suggestions that the US was facing an inevitable decline compared to challengers from Asia such as China. Rather, he said the country was "uniquely well placed to benefit" from emerging markets' growth.

Nevertheless, Mr Geithner conceded that the spiralling US budget deficit would eventually have to be tackled. "Our fiscal position is unsustainable over the long term," he said. "We are in the process of building a consensus about how [deficit reduction] happens."

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