* Sees tragically moderate reduction in unemployment
* The U.S. to benefit from emerging markets growth
* Confident Europe can solve fiscal problems
* Japan’s main problem growth and ageing population
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DAVOS, Switzerland, Jan 28 (Reuters) - U.S. Treasury Secretary Timothy Geithner said on Friday confidence was growing that the U.S. economy was heading for a sustainable expansion but the cut in unemployment would still be tragically moderate.
U.S. gross domestic product numbers for the fourth quarter are due out at 1330 GMT, with economists forecasting an annualised expansion of 3.5 percent.
“There is more confidence now that the most acute part of the crisis is over, absolutely in the U.S. but even true globally,” Geithner told a panel at the World Economic Forum in Davos.
“I think there is much more confidence now that we’ve got a sustainable expansion. It is not a boom. It’s not going to offer the prospect of a rapid decline in the unemployment rate.”
The U.S., along with Japan, on Friday faced new pressure to confront its swollen budget deficit as ratings agency Moody’s said the risk that it would lose its AAA credit rating, although small, was rising.
Geithner said there was a growing recognition that the United States’ fiscal position is unsustainable and increasing political will to put it back on track.
“Political will is not fully manifest at the moment but it’s coming, there’s no alternative to it. We can’t grow our way out of it,” he said.
But he added the country should avoid cutting spending too deeply in order not to hurt the recovery.
“I know there are people who would like to make very deep cuts that would undermine the recovery,” he said.
The GDP numbers are expected to provide the clearest signal yet that a sustainable recovery is under way but progress reducing unemployment has been painfully slow, and the figures will likely be little comfort for millions of unemployed Americans.
“The overall output of the U.S. economy is now above pre-crisis level, yet unemployment is still in the range of 10 percent,” Geithner said, adding it was the way the US economy works as companies cut deeply into the payroll and employment base with brutal force.
“That is gonna consign us to a tragically more moderate reduction in unemployment as the economy recovers,” he said.
Geithner said he would not put inflation at the very top of a list of global concerns but said it was a serious challenge for developing markets.
He said the United States was in good position to benefit from a rapid expansion of emerging economies.
“I think we are at a beginning, I still think at a very early stage of what’s gonna be a long period of exceptional growth in emerging markets around the world,” he said
He said it would be easier for emerging economies, especially China, to manage those challenges if they softened their link to the dollar. (Reporting by Paul Taylor, writing by Dmitry Zhdannikov; editing by Patrick Graham)