WASHINGTON – A pickup in global growth has gained steam over the past year but some countries like Japan face a significant threat if oil prices remain elevated, Federal Reserve (search) Chairman Alan Greenspan (search) said.
In written responses to questions submitted to Greenspan on July 20 before the Senate Banking Committee (search) and made public on Tuesday, the Fed chief said recovery "has become both stronger and more sustainable" over the past year.
"Growth has strengthened in every major region compared with the sluggish performance during the first half of 2003, and recent indicators suggest that the foreign economies continue to put in a favorable performance," Greenspan said.
Europe trails the pack, though it too was growing.
"The pace of recovery in the euro area has been sluggish, however, with particularly weak activity in Germany," Greenspan said.
The Banking Committee received Greenspan's responses on Aug. 18 and circulated them to members before making them public.
In response to a question about soaring house prices, Greenspan conceded that in some areas prices have outstripped growth in incomes and rents. "This observation raises thew possibility that real estate prices, at least in some markets, could be out of alignment with the fundamentals."
Concern has been expressed in Congress and elsewhere that home prices in some metropolitan areas have shot up at such a pace that they constitute a "bubble," which could burst to the detriment of owners and the broader economy.
Greenspan cautioned that, after a period of very low mortgage rates, it was hard to get a clear measure of home-price rises, but policy-makers were watching the issue.
"As is the case with other asset prices, we monitor real estate prices closely in developing our economic outlook," he said.
He said Japan, which went through a decade-long period of stagnation before its economy began to grow last year, seemed to "finally be on its way to a self-sustaining recovery" but faced risks.
"In particular, the recent run-up in oil prices, if sustained, may exert a significant drag on Japanese economic activity," Greenspan said. Japan is wholly dependent on imported oil, which reached nearly $50 a barrel recently, but closed on Tuesday at just over $45.