Officials see US economic growth in 2nd half

 Top administration officials said Sunday US economic growth is highly likely to resume in the second half of the year, but warned of "hard choices" to contain rising deficits once recovery is assured.

Treasury Secretary Timothy Geithner would not rule out higher taxes in the future, telling ABC television: "We're going to have to do what is necessary."

Geithner and White House economic adviser Larry Summers went on the Sunday television talk shows to make the case that President Barack Obama's economic stimulus program was gaining traction despite rising unemployment and worries about the US deficit.

"A very great likelihood, and this is what most professional forecasters say, is that we'll see growth going forward in the second half of this year," Summers said in an interview with NBC television.

They were seconded by former chairman of the Federal Reserve, Alan Greenspan, who told ABC the worst US financial crisis in a half a century was "not quite" over, "but we're getting there."

Greenspan said he was "pretty sure" the broader US economy had hit bottom and begun to turn around in mid-July.

Summers pointed to the wild success of a "cash for clunkers" program as a sign that the US auto industry was coming back to life, and said industries will have to replace inventories that have been massively cut.

But both he and Geithner acknowledged that the US jobless rate will continue to climb from its current level of 9.5 percent. The treasury secretary cited private analysts as saying it will not start coming down until the beginning of the second half of 2010.

"You are right that there are signs the recession is easing. And if you think about where we were at the end of last year -- we had an economy in freefall, a financial system on the verge of collapse," Geithner said on ABC.

"But I think we have a ways to go," he added. "I want to emphasize the basic realities. Unemployment is still very high in this country. We need to make Americans more confident about their future."

The latest ray of light in the economic storm came with new gross domestic product figures released Friday by the Commerce Department, which estimated that the US economy contracted 1.0 percent in the second quarter, better than forecasters expected.

US Treasury Secretary Timothy Geithner speaks in Washington, DC, in July 2009.

The administration said the new report showed the economy was in deeper trouble than believed when Obama took office but that its recovery programs were working.

"What you're going to see first is growth turn positive," Geithner said. "And then you're going to see the pace of job losses slow materially for the -- they have already slowed significantly, as you said. They're going to slow materially further."

Asked about the possibility of a "double dip" in the recession, Geithner said the administration did not see it as a risk at the moment.

Christina Romer, chair of the White House Council of Economic Advisers, told CNN: "As you go into 2010, we can't just limp out of this thing, we need to be growing robustly to make sure that the unemployment rate comes down."

But as the US economy emerges from recession, the administration will be faced with another daunting challenge: bringing under control the huge deficits used to refloat the economy.

Republicans have zeroed in on the issue as their main line of attack on Obama's economic program and his push for reform of the US health care system.

"What I worry more than anything about is the long-term effects because we are committing generational theft," said Senator John McCain, the Arizona Republican who ran for president against Obama last year.

"We have put trillions of additional debt on future generations of Americans. And there is no one that I know that sees a way out of it."

Geithner said the administration's first priority was to stabilize the economy but he acknowledged that the recovery will not be "strong and sustained unless we can convince the American people that we're going to have the will to bring these deficits down once recovery is firmly established."

Asked whether that meant raising taxes, Geithner said, "We're going to have to do what is necessary."

"Remember the critical thing is people understand that when we have recovery established, led by the private sector, and we have to bring these... deficits down very dramatically," he said.

"We have to bring them down to a level where the amount we're borrowing from the world is stable at a reasonable level. And that's going to require some very hard choices," he said.

Source AFP

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