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US facing tough Q2, Europe to suffer - Paulson

(Agencies)
Updated: 2008-07-02 16:42

BRUSSELS -- The US economy is facing a tough second quarter and Europe will not be immune to the impact, Treasury Secretary Henry Paulson was quoted as saying on Wednesday.

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. [Agencies]

"There's no doubt that the second quarter will be a tough quarter," Paulson told the International Herald Tribune in an interview. "There's no doubt in any of our minds that the high oil prices are going to have an impact."

Paulson is on a trip to Europe and Russia to explain how Washington is working to resolve the US economic problems, just as signs emerge of a sharper slowdown in Europe than had been previously detected.

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Denmark said on Tuesday its economy was in recession, the first EU state to report that its output shrank for two quarters in a row.

US data also on Tuesday added to concerns that the United States is facing weak growth combined with high inflation.

Paulson told the IHT that the US woes would have an impact on Europe.

"I've never been one to accept the decoupling theory," he told the newspaper. "In a global world, we're all interrelated."

A weaker Europe could also hurt the US economy due to a lower demand for US exports, Paulson said, adding emerging economies would now give the biggest lift to global output.

Paulson has used his trip to reinforce the message from Washington that the US administration believes in a strong US dollar.

But he declined to comment on the divergence in interest rate policies of the US Federal Reserve, which has cut rates, and the European Central Bank, which is expected to raise them on Thursday.