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The weekend, I will chair a meeting of the Group of Seven finance ministers and central bank governors - representatives of the world's leading industrial economies.
'Global economic growth is at the top of our agenda - as it has been for the past several meetings - and finally we are beginning to see some real progress.
The world economy is picking up steam, as growth accelerates in many regions. The US is the clear leader of this global growth. George W Bush's tax cuts, passed by Congress, have worked. They provided the stimulus that was necessary to turn the economy round, and they are now encouraging continuing growth.
The evidence of the success of the president's pro-growth economic policies is abundant, and the world is taking notice. Economic growth in the US in the second half of 2003 reached 6.2 per cent, the fastest rate in almost 20 years. Business investment increased at a double-digit rate in this same period. Manufacturing activity is increasing. Productivity growth remains exceptionally high while inflation is still subdued, Home ownership is at an all-time high, the economy is generating jobs, and unemployment has declined.
Our G7 partners are also seeing signs of strengthening growth. Japan's recovery gathered momentum in 2003, with the economy growing at a remarkable 6.4 per cent in the fourth quarter, although domestic demand is just beginning to revive. Even in continental Europe, where growth is still lagging behind, there are some positive indicators.
While the US is the leader in global growth, we are also operating with a fiscal deficit that is unwelcome. We acknowledge that it is too large and we are committed to reducing it dramatically, but those who point to our budget deficits as a threat to global prosperity are misguided in their thinking.
It is important to recognise the difference between our short-term and our long-term deficits, to understand that both can be dealt with, and to realise that a threat to the global economy exists only if action is not taken.
In the short term, our deficit outlook is low by historical standards and manageable. The president's budget seeks to cut the short-term deficit in half-over five years, restoring it to a level below the 30-year average in terms of the size of our economy.
Continued pro-growth policies such as tax cuts, which lead to increased Treasury receipts, combined with 'restrained government spending, are the keys to that deficit-reduction plan.
Our long-term deficits are a different matter and must be addressed in a different way.
US long-term deficits are tied to our Social Security pension system and Medicare trust funds. They, therefore, reflect a demographic challenge as well as the very serious - and often overlooked - challenge of rising healthcare costs. Controlling healthcare costs is the real key to the long-run fiscal sustainability of both Medicare and the federal budget.
The US is also running a current account deficit with the rest of the world, which means that we import more and attract more capital than we send overseas. The current account deficit has hovered around 4 to 5 per cent of gross domestic product in recent years, during a time of both US fiscal surpluses and fiscal deficits. The deficit reflects foremost the strengths of the US economy - high productivity, strong US growth relative to growth abroad, and the relative attraction of investing in our robust, dynamic economy, which has the deepest and most resilient capital markets in the world.
Now is the time for all the leading economies to make lasting changes that will help generate stronger global growth that is broad-based and can be sustained well into the future. Last September, the G7 nations all agreed on this crucial objective. We committed ourselves to implement structural changes in our economies under what we have called the Agenda for Growth. This initiative focuses on reforms such as reduction of marginal tax rates, labour market reform and regulatory changes - that will boost productivity and employment and raise economic performance over the long term.
Each G7 country has taken concrete actions to advance the Agenda for Growth, and I am proud to put America's reform agenda alongside others' efforts. The US is on a path to sustained economic growth. It is also working hard to make sure that other countries, too, are doing their part to help fuel growth in the world economy that is vital to raising incomes and improving living standards.
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FT Syndication Service
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