WASHINGTON -- A senior U.S. Treasury Department official charged on Wednesday that forecasts of potential recession in the United States and globally were unnecessarily bleak, but noted that a housing downturn and market turmoil were weighing on prospects.
David McCormick, Treasury's undersecretary for international affairs, said an International Monetary Fund forecast that said the U.S. will suffer a mild recession this year was "unduly pessimistic."
He conceded at a press conference that "a significant downturn" was under way, but disputed the extent of the dip in growth that IMF foresaw.
The IMF said U.S. growth would slide from a subpar 2.2 percent in 2007 to only 0.5 percent in 2008 and 0.6 percent in 2009. It also cut its global growth estimate for this year to 3.7 percent from 4.8 percent it forecast last October and predicted growth in 2009 would barely accelerate to 3.8 percent.
"Those numbers, in terms of the outlook for the United States in '08 and '09, as well as the outlook for other regions around the world were significantly below consensus," McCormick said.
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"Our hope and expectation is that we'll see the U.S. economy begin to move in a more positive direction toward the end of this year and be on an even steeper growth trajectory in 2009," he added.
McCormick acknowledged there were "downside risks" to the outlook from a severe U.S. housing downturn and market turmoil, but restated the Bush administration's position that it did not see the need for the use of public money to settle matters better left to the markets.
NO PUBLIC MONEY
"We think a very significant injection of public funding that essentially bails out speculators would not be a good use of taxpayer money and is frankly not something that we sense most Americans would support," McCormick said in response to a question, adding he did not think there was any consensus among G7 members for using public funds.
The G7 comprises the United States, Britain, Canada, France, Germany, Italy and Japan. Much of this week's meeting is expected to center around recommendations in a Financial Stability Forum for calming queasy markets.
The recommendations, which McCormick said number about 65, call for more transparency about the risks that banks and securities firms are taking as well as much closer scrutiny of the biggest banks' activities across international borders.
Global markets have been in turmoil since August, when a crisis in U.S. subprime mortgage markets began rippling through the global economy and threatened to seize up credit markets.
McCormick said the United States will urge members of the FSF, including the Basel Committee on Banking Supervision, International Accounting Standards Board and other regulators, to speed up their efforts and conclude their work by year-end.
The IMF said not only was the United States likely to tip into recession this year, but there was a 25 percent chance world growth would slow to 3 percent or less — a level so low it would be considered recessionary.
EXPECTED A SLOWDOWN
McCormick said some slowdown was "inevitable" after four years of growth averaging about 5 percent. "The extent to which particular economies will be affected varies; some commodity producers and emerging market economies are likely to continue to enjoy robust growth," he said.
McCormick also said the United States will press for the IMF to step up its surveillance of exchange-rate policies, a perennial topic. The United States will back a recent agreement on IMF voting reform, even though it falls short of what had been sought, he said.
In response to questions, McCormick said China has made progress in recent months in letting its yuan currency rise in value but needs to do more.
"We believe China should accelerate its movement to a market-driven currency," he added. "We think it's still an important priority for addressing global imbalances."
China is not a member of the G7, despite its rising importance in the global economy, but McCormick noted senior Chinese officials will be in town and that Treasury Secretary Henry Paulson planned a bilateral meeting with China's Central Bank Governor Zhou Xiaochuan.
The G7 meeting is being held just ahead of semiannual meetings of the International Monetary Fund and World Bank over the weekend.
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