By Simon Kennedy Washington, June 14 (BridgeNews) - U.S. Treasury Secretary Paul O'Neill told Business Week that if the global economy was to grow by 3.0-3.5% again it was important that America, Japan and Europe all performed strongly. Projecting an improvement in the world's richest economy in the second half of this year, he predicted others would follow suit.
"If we're able to start moving [the world] will follow," O'Neill told the magazine, adding that he was optimistic that his economy would "move up the growth curve" in the second half of this year after having expanded just 1.3% in the first quarter. Looking overseas, O'Neill said he was "encouraged" by events in Japan. Brushing aside its 0.2% contraction in the first quarter as "not much of a surprise," he said more important were the prospects for a change in economic policy under Prime Minister Junichiro Koizumi.
"(He) has indicated he's going to do things in a different way and fairly soon," O'Neill said. "Opening their economy to foreign ownership and world prices is something only they can do. We can only be supportive. But this is really up to them." On the issue of Japan's $100 billion in bad loans, which are crippling its financial sector and hindering recovery, O'Neill said while there was some doubt over the actual amount it was still "a hell of a big number." "Once they start cleaning up loans the process will have its own momentum," he said.
With many of the non-performing loans already "marked [down] in the real world," the downsides from formally writing them off "could be much smaller than people fear" with a limited effect on unemployment, he added. "The really important part is to make sure that going forward, banks make viable loans to enterprises that can service capital flows on a world competitive basis," he said. "Otherwise they are going to have the same problem."
O'Neill said he was unsurprised by the slowdown in Europe, claiming it made a recovery in the American economy more important for the whole world. "It's quite important for Japan to play a much stronger growth role than they have in the past 10 years," he said. "It's also important that the Europeans work at the top end of their potential." For global growth of 3.0 or 3.5% "you need to have all cylinders firing," he said.