U.S.’s Brainard Urges Europe to Boost Demand to Avoid Long Slump

Europe faces the risk of prolonged economic stagnation unless officials in the region pursue a strategy that accelerates domestic demand, the U.S. Treasury Department’s top international official said.

Lael Brainard, the Treasury’s undersecretary for international affairs, said the Group of 20 economies meeting later this week need to take action to spur growth. She was speaking at a conference hosted by the Carnegie Endowment for International Peace in Washington today.

Finance chiefs from the 20 largest developed and emerging economies meet in Moscow July 19-20. Brainard said the U.S. comes to the talks in a stronger position, with a rebounding housing market and a more resilient financial system.

“If you look across the global landscape, there are reasons to be concerned that some parts of the world aren’t doing enough to bolster domestic demand,” Brainard said, naming Europe as one of the laggards. “For our part, I think we go into international discussions at a stronger point than we’ve seen at any time in the last four years.”

The International Monetary Fund last week predicted the economy of the 17-nation euro region will shrink 0.6 percent this year as Italy, Spain and France contract. U.S. gross domestic product will expand 1.7 percent this year before accelerating to 2.7 percent growth next year, three times the pace of the euro zone’s projected 2014 growth, the fund said in revisions July 9 to its World Economic Outlook.

‘Growth Plan’

“It is very important for Europe now to move from the financial stability gains that it has made, which were very hard ones, and move to a growth plan, a demand plan,” she said.

Brainard also said China’s new economic leaders, meeting with U.S. officials last week in Washington, indicated a willingness to move toward more market-oriented policies including with its exchange rate and interest rates.

“They need to undertake new structural reforms to get their economy onto a path that’s driven by the domestic consumer and much less reliant on no-longer sustainable pattern of over-investment in resource-intensive industries,” Brainard said today.

China’s economy slowed for a second quarter as growth in factory output and fixed-asset investment weakened, adding to risks that the government will miss its expansion target as Premier Li Keqiang reins in a credit boom.

Gross domestic product rose 7.5 percent in April-to-June from a year earlier, the National Bureau of Statistics said in Beijing earlier today, equaling the median forecast in a Bloomberg News survey and down from 7.7 percent in the first quarter. June production growth matched the weakest pace since the 2009 global recession.

To contact the reporter on this story: Kasia Klimasinska in Washington at kklimasinska@bloomberg.net

To contact the editor responsible for this story: Chris Wellisz at cwellisz@bloomberg.net

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