Lutnick expects US first quarter growth above 5%, warns EU against retaliation

DAVOS, Switzerland, Jan 20 (Reuters) - U.S. Commerce Secretary Howard Lutnick said on Tuesday he expected first quarter GDP growth in the United States would exceed 5% in the first quarter of 2026, adding that its interest rates were too high and were holding back ?stronger growth.

Lutnick also warned the European Union not to retaliate against President Donald Trump's threatened tariffs ?over his attempts to gain U.S. control of Greenland.

"Our rates should be much ?lower so that our economy can finally flourish. I ?think we're going ?to grow more than 5% GDP this quarter, and that's for the $30 trillion U.S. economy," he ?said at the World Economic Forum's annual ?meeting in Davos.

"And if rates were lower, you would see us hit 6% what is holding us back is ourselves," Lutnick ?said during a panel discussion at ?the event ?in the Swiss mountain resort.

Lutnick, whose agency oversees the Bureau of Economic Analysis, which prepares U.S. GDP data, said his outlook was his ?own personal opinion. It was much rosier than U.S. Treasury Secretary Scott Bessent's, who said in Davos that he expected U.S. real GDP growth this year between 4% and 5%.

The International Monetary Fund on Monday forecast U.S. real GDP growth at 2.4% for 2026, a 0.3 percentage point improvement over ?an ?October estimate due to continued strong AI investment and a more benign tariff outlook.

The relative trade peace could be shattered, however, by Trump's ?threat to impose tariffs on countries that resist a U.S. takeover of Greenland and potential EU retaliation.

If the EU proceeds with such retaliation, Lutnick said, "then we'll be back to tit-for-tat" escalation of tariffs.

Lutnick said similar threats were made when Trump first imposed tariffs on EU goods last year, but the two sides agreed on a trade ?deal.

He predicted a similar outcome this time, saying: "If we're going to have a kerfuffle, so be it. But we know where it's going to end. It's going to end in a reasonable ?manner."

(Reporting by David Lawder, Chris Thomas and Shubham Kalia; Editing by Alexander Smith)