Former U.S. Treasury Secretary Larry Summers said the recovery in the U.S. economy is underway, though it is not yet at “escape velocity.”
“Recovery is reasonably well established,” he said in an interview with Erik Schatzker on Bloomberg Television in Davos, Switzerland, today. “Is escape velocity -- at a sufficient rate to get us back to full employment in a reasonable interval -- yet established, I think one would have to say the answer to that question is no.”
U.S. gross domestic product probably expanded at the fastest pace in 1 1/2 years as consumer spending picked up and companies rebuilt stockpiles, economists said before a report today. Still, Federal Reserve officials said this week they are concerned about the economy’s lack of vigor two years after the last recession ended, prompting a pledge to keep interest rates low into 2014.
Summers spoke after data showed Spain’s unemployment rate rose to 22.9 percent and as officials meeting at the World Economic Forum’s annual conference discussed the prospects for an end to the sovereign debt crisis in Europe.
“You’re seeing U.S. growth accelerate even as European growth is contracting,” Summers said, when asked if the U.S. economy had decoupled from Europe. “Will our prospects be better if Europe is able to contain its situation? Absolutely.”
Summers, who was Treasury secretary under President Bill Clinton and director of the National Economic Council under President Barack Obama until last year, also said the European Central Bank’s three-year loan program was a “substantial step” in helping to ease strains in the region.
ECB President Mario Draghi “deserves great respect for the way in which he’s pulled that off. It’s a mistake to lose sight of the fact that substantial time has been bought,” he said.
The declines in Italian and Spanish bond yields show that “near-term risks have been substantially contained,” he said. “Is there a clear road to sustainable growth throughout the eurozone in a fashion that’s likely to be economically and politically harmonious? That is not yet in place.”
“It was necessary to stop hemorrhaging,” Summers said. “Whether that will be sufficient to contain economic decline in Europe remains very much in doubt. There are very substantial headwinds from a weakening global economy, a weakening periphery, fiscal austerity, from problems in the banking system.”
The Commerce Department in Washington is due to publish the fourth-quarter GDP report at 8:30 a.m. local time. The median estimate of 79 economists surveyed by Bloomberg News is for the economy to have grown at a 3 percent annual pace. Growth estimates ranged from 2.4 percent to 4.5 percent.