The slowdown in the global economy need not turn into a sharp downturn, Robert Hormats, Under Secretary of State for economic growth in the Obama Administration, told CNBC’s "Closing Bell" on Thursday.
“I’m worried about global growth but I don’t think it’s a crisis,” the former Goldman Sachs International vice chairman said. “But certainly, parts of Europe are slowing down, China is slowing down — although it’s still growing at a reasonable rate — and many of the other BRICs are slowing down as well.”
This slowdown doesn't have to mean a sharp downturn but it will certainly temper growth around the world and could impinge on trade, Hormats cautioned. This is particularly true for China which is more dependent on Europe for its exports than the U.S. (Read More:China Tied Up by Transition as Its Economy Loses Force.)
To dig out of its crisis, Hormats said Europe needs to balance deficit reduction with growth measures. “They have to come to an agreement on a balance between austerity and measures that will encourage medium to long-term growth,” he said.
Hormats also said Europe needed continued action from the European Central Bank and noted that Italian prime minister Mario Monti has been “excellent” as he undertakes measures to strengthen the base of the economy.
“But it’s a slow process of digging out of a very significant problem,” Hormats said.
The U.S. faces the same challenges of cutting the deficit while also investing in the country’s future competitiveness, Hormats said. He also said going over the “fiscal cliff” when a host of tax cuts expire and spending cuts kick in would be a “calamity.” (Read More:Corporate America Sweats as US Nears ‘Fiscal Cliff’.)
“If we don’t do this the consequences for the economy and foreign policy would be substantial,” Hormats warned. “Strong foreign policy is built on a strong economy.”