Author: By Sean O’Grady, Economics Editor
Timothy Geithner, visiting London in preparation for the G20 summit in Pittsburgh in September, was asked by reporters about the possibility of a “double dip” recession. “In my view, there are still significant risks and challenges ahead of us,” he replied: though he stressed that the “significant measures” taken by the world were having an effect, mainly in preventing a freefall in economic activity.
On the outlook for the US economy, the world’s largest, Mr Geithner said there was a “very good chance that we will get back to the point where it is going to start growing again over the next two or three quarters”.
The Treasury Secretary, echoing remarks made last week by President Barack Obama, repeated his expectation that the “maximum impact” in employment terms of the unprecedented fiscal and monetary stimulus now being implemented would take place in the second half of this year, and that the duration of the whole programme would be over two years.
Saying that the measures taken so far were “necessary but not sufficient” to ensure recovery, Mr Geithner added: “We have a very powerful set of policies in place, coming on stream. I think there is a very good chance we will see the US economy and the world economy get back to recovery, get growing again, over the next few quarters.
“I think we have remarkably strong consensus in place on core elements. I think the policies have been very effective in arresting, in mitigating the forces of the storm and we are starting to see a better basis for recovery starting to be made in the US.”
One of the most important issues for G20 leaders will be securing more detailed international agreement on the regulatory reforms to the banking system urged in the communiqué of the London summit in March.
Both Mr Geithner and his British counterpart, Chancellor Alistair Darling, said there was broad global consensus on the principle of reform, such as the need to restrain excessive risk-taking and provide protection for consumers and investors against manipulation and fraud. But they also indicated that many issues required further international co-operation.
Given the complexity of the issues and the variety of national interest at stake, many observes expect work on issues such as so-called “macroprudential tools” and the capital and liquidity requirements for international banks to grind on at a glacially slow rate.
Mr Geithner was speaking as speculation about the fate of the ailing US lender CIT Group intensified. “I am actually pretty confident in that context we have the authority and the ability to make sensible choices,” he said, although he would not be drawn on precisely what actions America’s federal agencies might take.
Mr Geithner again hinted that he would use the G20 summit and the round of international negotiations leading up to it to pressure the Chinese government to address issues such as its huge trade surplus and the value of the yuan. These, he explained, were among what he called “longer-term challenges” of achieving “a more balanced framework for growth globally” that would face the world when it returned to growth.
The “global imbalances”, of which those between the US and China are the most serious, are held by many to be the root cause of the present crisis and the credit bubble that preceded it.
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