Geithner warns of tough times ahead despite signs of recovery

New YorkThe US economy is growing again but faces tough challenges that call for action to create jobs and foster expansion, Treasury Secretary Timothy Geithner said on Thursday.

Geithner, speaking to the Economic Club of New York, singled out rising oil prices as a stumbling block for the economy because they force consumers to pay more for petrol at the pump.

He said the economy was now more productive than it was before the 2007-2009 financial crisis but cautioned that confidence remains fragile.

"That is why it is so important that policymakers continue to work to get the economy growing faster in the short term and not shift prematurely to fiscal restraint," he said.

"We can't cut our way to growth. Severe austerity now would be very damaging."

He cited a number of factors that together mean Americans are facing "a dangerous and uncertain world", including escalating energy costs.

"There is no quick and easy fix to this problem, but it reinforces the need for more progress to develop additional sources of energy of all forms," Geithner said.

Earlier on Thursday, it was reported that Britain was ready to cooperate with the United States on a release of strategic oil stocks, possibly within months.

Geithner noted that at the end of 2012, the country faces a simultaneous expiry of tax cuts and across-the-board spending cuts that together would amount to about five per cent of its gross domestic product.

Strong incentive

The prospect of such a blow to national output should be a strong incentive for lawmakers to reach some compromises on taxes and spending, he suggested.

Geithner said the Obama administration is aiming for a package of measures that includes some tax increases for wealthy Americans, though that is opposed by Republicans.

"If you do not raise revenues through tax reform, then you have to find another 1 per cent of GDP or roughly $1.5 trillion [Dh5.5 trillion] over ten years in additional savings from defence, Social Security, Medicare, education or low income programmes," he said.

During a question period later, Geithner said the country now faces "stark choices" about the best course for boosting growth and getting deficits down.

He suggested there was "no alternative" to raising some taxes along with reducing spending and said reductions in some benefit programmes were "manageable" if they were made over time.

"People are going to be reluctant to see their benefits cut unless they think that those benefit cuts are not going to sustain tax rates we can't afford," he said.

"They go together. There's no alternative. It's going to have to happen and it's better for us if it happened sooner and with design in it than happen too late without the opportunity for people to adjust."

He noted that research shows recoveries that follow financial crises tended to be "more tentative and uneven" and said it is likely to take years to fully repair damage caused.