Hurricane Katrina’s damage will likely lead to a ”largely temporary” slowdown in national economic growth, though the impact on the Gulf Coast economy will be more profound, United States Treasury Secretary John Snow said on Friday.
While the damage will have ripple effects on the US economy through temporarily higher unemployment rates and slower job growth, spending on storm recovery and rebuilding will likely spur growth in 2006, Snow said in an interview on Bloomberg TV.
Oil prices already have fallen back from a spike upward following the storm’s passage through the Gulf Coast, but it’s likely that energy prices will ”stay elevated” because of strong demand growth and the difficulty of bringing new supply online quickly, he said.
The Treasury secretary said he doesn’t think Congress needs to pass economic stimulus legislation on top of hurricane- and flood-related emergency funding, which has already surpassed $60-billion.
”There are very few blessings in a tragedy of this proportion,” Snow said of the hurricane’s devastation. ”One is that it hit us at a time that the American economy is performing so well.”
The Treasury secretary said he thinks the Congressional Budget Office’s projection that Katrina could reduce gross domestic product (GDP) growth in the second half of 2005 by up to 1% is ”probably on the high side”.
”I don’t think anybody knows,” he said. ”But there’s no doubt about the fact that there’s some adverse effect in the short term, for the second half [of 2005].”
During the third and fourth quarters, the US is likely to see slower growth and higher inflation rates, he said.
On Tuesday, Snow said a slowdown of about 0,5% might be expected in coming quarters, followed by an upturn in 2006.
Snow said the easing in energy prices is a positive result of the federal government’s decision to release crude oil from the strategic petroleum reserve and relax regulation of refined oil products.
”I think we will see the economy come back, pick up the lost GDP growth and jobs in 2006,” Snow said in another interview from Houston on CNBC. ”That’s the normal pattern because there’s a major rebuilding and reconstruction aspect to this sort of devastation.”
The recovery effort will contribute to the federal deficit, mainly in 2006, but its full effect is currently unknown considering potentially offsetting revenue growth from an expanding economy, he said.
The Bush administration has said the recovery shouldn’t derail its plan to reduce the federal deficit by half in the 2004-2009 period.
”We can afford this,” Snow said. ”America has met challenges before.” — Sapa-AP