International market turmoil will hit US growth but not push it into recession, US Treasury Secretary Henry Paulson said in an interview published on Thursday.
Global share falls sparked by fears over the US mortgage market “will extract a penalty on the growth rate” of the US economy, Paulson told the Wall Street Journal newspaper.
But he added that “the economy and the markets are strong enough to absorb the losses” without provoking a US recession.
Paulson highlighted that the troubles had hit markets “against a backdrop of a very healthy global economy with strong fundamentals.”
“Looking over periods of stress that I’ve seen, this is the strongest global economy we’ve had,” said Paulson who was chief executive of Goldman Sachs bank.
He said some “entities will cease to exist” because of the troubles and that the market “adjustment” would go on but the US economy would still keep growing.
Paulson said the greater difficult in getting loans for more risky US home buyers “shouldn’t surprise anyone.” He said the change had been “inevitable.”
“When you have periods of benign markets, particularly in situations where parts of markets and the economy are growing at levels that are unsustainable, market participants aren’t going to be as vigilant as they should be,” he said.
Paulson said the strength of the global economy is one major difference between this crisis and the international falls in 1998 after Russia’s debt default and currency devaluation and the collapse of hedge fund Long Term Capital Management.