Business | Economy
Paulson says US economy has taken a turn for worse
The US economy has taken a sharp turn for the worse and is facing a tough quarter, Treasury Secretary Henry Paulson said yesterday.
- Reuters
- Published: 00:44 April 4, 2008
- Image Credit: AP
- Chinese Commerce Minister Chen Deming greeting Henry Paulson.
Beijing: The US economy has taken a sharp turn for the worse and is facing a tough quarter, Treasury Secretary Henry Paulson said yesterday.
Speaking to reporters during a visit to Beijing, Paulson sidestepped a question on whether the economy was at risk of toppling into recession, something that Federal Reserve Chairman Ben Bernanke said on Wednesday was a possibility.
"There is no doubt we're having a tough quarter, that the economy has turned down sharply," Paulson said.
But he said a swoon in the housing sector, which was largely to blame for the rough patch, was necessary.
"We need to have this correction. It's not pleasant, but we need to have it," Paulson said in reference to declining US house prices and homebuilding.
For the second day in a row, Paulson praised China for letting the yuan rise more quickly, a long-standing demand of the Bush administration.
Currency gains
The Chinese currency gained four per cent against the dollar in the first quarter and has now risen 18 per cent since July 2005, when it was depegged from the dollar.
"Although the process of adjustment is not complete, the accelerated pace of appreciation is significant and welcome, and should continue," Paulson said in a speech to the Chinese Academy of Sciences.
A stronger exchange rate would help China to tackle inflation, now at a near-12-year high of 8.7 per cent, he said.
Although China would shed some jobs as its economy adapted to a stronger currency, there was no sign that overall growth had been hurt by the rising exchange rate, Paulson told reporters.
By contrast, maintaining a misaligned, undervalued currency was fraught with risk. "China's economy is so large, complex and integrated that it is dangerous if it does not have a currency that reflects fundamentals," Paulson said.
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