Oil prices could prolong economic slowdown

Soaring world oil prices risk prolonging the world economic slowdown, US Treasury Secretary Hank Paulson has warned.

Following talks in London with Chancellor Alistair Darling, Paulson said that the rise in energy prices presented a "strong head wind" to growth in the world economy.

However he insisted that the "fundamentals" of the US economy were strong and predicted that growth would pick up in America by the end of the year.

"I think that the oil prices are a strong head wind and at this level ... they have got a high risk that they are going to prolong the slowdown," he said.

Paulson said that the turmoil in the financial markets and the correction in the US housing market would continue for some time.

However he said that he believed the outlook would improve towards the end of the year. "We have strong long-term economic fundamentals in the US," he said.

"I think there is a very strong possibility that we will be growing at the end of the year – we will have stronger growth at the end of the year than we have right now," he said.

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