While the International Monetary Fund (IMF) projects that the world economy will grow at about 4.5 percent this year, the world still faces “very significant” economic policy challenges, US Treasury Secretary Timothy Geithner said on Saturday.
Oil prices have risen, driven by political developments in the Middle East and North Africa, rapidly rising demand in emerging markets and a muted supply response, Geithner said in a statement at the International Monetary and Financial Committee meeting.
“In the near term, spare capacity is sufficient to meet any disruption in supply. In the longer term, we must create better incentives for energy efficiency.” Fiscal and banking strains in the euro-area periphery continue to generate headwinds, and European officials are working to assist the most affected countries, he said.
“In the wake of the tragic events of last month in Japan, we stand ready to do all we can to help the Japanese people in their reconstruction efforts, and we have full confidence in the capacity of Japan to address the additional economic challenges it faces during its difficult times,” Geithner said, referring to the earthquake, tsunami and nuclear plant disaster in that country.
The challenge in emerging economies is to deal with rising commodity and energy prices — and, for some, volatile capital flows — in a manner that allows for sustainable growth and does not exacerbate global imbalances, he said.
“For the United States, the outlook has improved substantially since we last met in October,” Geithner said. “We are encouraged by signs of self-sustaining growth in consumer and business spending, along with a quickened pace of hiring in recent months. Yet too many Americans are not yet back to work, and many are still struggling due to losses in their savings and the value of their homes.”
US officials must work to deepen the recovery at home and ensure that the US economy is a source of “dynamism and stability” over time, he said, and the Obama administration is charting a course to achieve these ends.
“We are working to improve the long-term competitiveness of our economy through targeted investments in education, research and development, and infrastructure,” he said, “and we are committed to fiscal reforms that will restrain spending and reduce deficits while not threatening the economic recovery.”
This week, Obama proposed a comprehensive fiscal framework that would reduce deficits to 2.5 percent of gross domestic product (GDP) in 2015 and put the US debt-to-GDP ratio on a declining path toward the end of this decade, Geithner said.
“The President’s framework represents a balanced approach to deficit reduction with three dollars of spending cuts and interest savings for every one dollar from tax reform,” he said. “It would be backed by a debt failsafe that would trigger across-the-board spending reductions if public debt as a share of the economy is projected in 2014 to not be stabilized and declining by the end of the decade.”
“Even as we make progress on this pressing work at home, we must continue to collaborate with our partners abroad to place the global economy on a more stable and resilient foundation,” he added.