Paulson Calls Economy `Healthy,' Housing a `Risk'

Treasury Secretary Henry Paulson said the outlook for the global economy for the rest of this year and next is ``quite healthy,'' even as the housing slump weakens American growth.

``The outlook for the remainder of 2007 and 2008 remain quite healthy,'' Paulson said in a statement, citing an increase in U.S. exports and ``strong performance'' of China and other emerging markets. In the U.S., ``the housing decline is still unfolding and I view it as the most significant current risk to our economy,'' he said.

Paulson said at a press conference that while currencies were discussed at today's Group of Seven meeting, he wouldn't elaborate about whether Europeans complained about the dollar's decline to a record low against the euro.

``We don't have any of these meetings without talking about currencies,'' he said. ``I was very clear -- and it didn't surprise anyone because I've always been clear on this with my colleagues -- that I believe a strong dollar is in our nation's interest and believe that currency values should be based upon underlying fundamentals in a competitive marketplace.''

He added that the G-7 ``had unanimity and I was very clear on our strong dollar policy.''

The International Monetary Fund this week cut its forecast for global growth next year. The fund cut its projection for the world expansion next year to 4.8 percent, from a July estimate of 5.2 percent. A weaker U.S. outlook was mostly to blame, as the IMF reduced its estimate to 1.9 percent, from 2.8 percent.

Housing Market

In the press conference, Paulson said that problems in the U.S. mortgage market aren't ``limited to subprime'' borrowers. Still, the housing recession isn't ``bleeding over into other areas,'' he said.

Financial markets dominated the meeting, he said.

``I reported to my colleagues that we confront these current challenges against the backdrop of a strong economy, not just in the U.S., but globally,'' Paulson said.

Paulson, who pledged this week to make policy changes necessary to avoid a repeat of the subprime meltdown, said some markets are ``returning to normalcy.'' Others are strained because investors are struggling to ``re-price'' risk, ``in part due to the complexity of the underlying securities.''

The Treasury chief, the former chief executive officer of Goldman Sachs Group Inc., said bank capitalization is ``remarkably strong.'' He also urged central banks to remain vigilant on inflation, and said completion of the World Trade Organization's Doha Round of negotiations is ``within reach.''

To contact the reporter on this story: Kevin Carmichael in Washington at