June 24, 2008 / 2:20 AM / in 11 years

Paulson says economy sound despite strains

CANCUN, Mexico (Reuters) - Treasury Secretary Henry Paulson said on Tuesday that the global economy was being strained by costly energy but said U.S. economic fundamentals were sound.

Treasury Secretary Henry Paulson pauses during remarks about the Federal Reserve and trying to reduce threats to the economy at a Women in Housing and Finance meeting in Washington, June 19, 2008. REUTERS/Jonathan Ernst

In an interview on Mexican television, Paulson said he thought that most of the slump in U.S. housing prices would be over by year-end and that growth should be stronger by then.

“I think it’s going to take some time to get out of this but don’t forget that the foundation of the United States economy is very solid. I think the United States can compete with any economy of any industrialized country,” Paulson said, according to a translation of his comments into Spanish.

Paulson, who was in Mexico to meet finance chiefs from 23 countries in the region, said there were no short-term solutions to high oil prices but urged more output by producers and greater use of alternative energy sources by consumers.

The U.S. Treasury chief said U.S. growth should be more vigorous later in the year.

“I feel moderately optimistic that at the end of the year we will have signs of an economic recovery,” Paulson said. “Hopefully the biggest part of the housing decline will be over by the end of the year.”

Paulson repeated that there were no quick fixes available for the strains that the U.S. and global economy were feeling from soaring oil prices. He made the same point on Monday, shortly after arriving in Mexico, at a press conference with Mexican Finance Minister Agustin Carstens.

“There are going to be some bumps in the road,” Paulson said. His comments came as U.S. lawmakers turn an increasingly skeptical eye on the activities of what they regard as speculators in oil markets and shortly after Saudi Arabia pledged to modestly increase its oil output.

Paulson repeated the Bush administration’s position that tight supply and strong demand were the key factors behind high oil prices, rather than speculation. He said it was vital that more investment flow into oil exploration and production to boost output.

“I don’t think there is evidence that speculation is having an impact on oil prices,” Paulson said. “It appears to me that the biggest impact (on prices) comes from an imbalance of supply and demand.”

Reporting by Glenn Somerville and Jason Lange, Editing by Chizu Nomiyama

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