The US economy appears to have entered a period of “self-sustaining” growth, but governments in other major economies need to do more to stimulate demand, US Treasury Secretary Jack Lew warned on Tuesday.
In a written testimony to Congress, Mr Lew said US growth of 2.5 per cent last year and robust forecasts for this year indicated that the US was set to grow “substantially faster than all of the other advanced economies combined” in 2015. But he signalled US concern about the health of the world economy as a whole.
“While the recovery in the US economy has helped to drive global growth, the rest of the world cannot depend on the United States to be the sole engine of growth,” Mr Lew said.
He cited a G20 pledge last year for more to be done to stimulate domestic demand around the world but hinted at US frustration that other major economies were not doing more.
“Our strength allows us to maintain our leadership in the global community, and while we must lead by example, we cannot do it alone,” he told the hearing.
The US was the only major economy apart from Spain to have its growth outlook upgraded last month by the International Monetary Fund in an update to its economic forecasts.
While the US economy decelerated in the fourth quarter of 2014, expanding at an annualised 2.6 per cent pace compared with 5 per cent in the previous period, its growth rate was still faster than the average set in the first 21 quarters of the recovery.
That strong performance contrasts sharply with other major economies, including notably the eurozone, which has been heading into deflation. The US is expected by the IMF to grow at three times the rate of the euro area this year.
Mr Lew gave voice to broader fears among US officials that the rebound in the US could be curtailed by sluggish demand overseas. That worry was formally flagged up by the US Federal Reserve last week when it added “international developments” to a list of swing factors informing its interest rate policy.
With central banks elsewhere cutting interest rates — and the European Central Bank having embarked on quantitative easing last month — the US dollar has been surging, creating headwinds for US exporters. The Fed has been laying the ground for a rate increase this year from the current 0 per cent to 0.25 per cent level, with a move expected in June or later in the year.
That could put further upward pressure on the dollar, prompting complaints from big US companies whose earnings are being squeezed by the rising currency.
Mr Lew’s warning came a day after the administration of President Barack Obama unveiled a highly political budget proposal that calls for Congress to loosen the pursestrings and deliver more help to a struggling American middle class while also continuing to reduce the deficit.
Mr Lew also defended an administration proposal for a one-off 14 per cent tax on overseas profits of US-based multinationals and other plans for corporate tax reform.
Calling the president’s plan for corporate tax reform “pro-growth”, Mr Lew said the US needed to do more to make sure the tax system did not encourage US businesses to relocate their operations overseas.
“Tax reform must seek to balance the need to reduce tax incentives to locate overseas with the need for US companies to be able to compete overseas for the investments and operations absolutely necessary to serve and expand into foreign markets in ways that benefit US jobs and economic growth,” he said.