Speaking after a meeting of Group of Eight finance ministers, Paulson said falling home prices, financial market turmoil and lofty energy costs all weighed on growth.
"While we are still working through housing and capital markets issues, and expect to be doing so for some time, we also expect to see a faster pace of US economic growth before the end of the year, while recognising that the recent increase in oil prices risks prolonging the US economic downturn," Paulson said.
The impact of high energy and food costs on global growth were a dominating theme of the session between Japan, the United States, Britain, Canada, France, Germany, Italy and Russia.
While some G8 members deplored the effect that speculation may be playing in sending commodity costs skyward, Paulson said oil prices were being driven by market forces.
"At its heart, this run up in price reflects long-term trends in global supply and demand and strong economic growth coinciding with a period of minimal investment in oil production," Paulson said, putting him at odds with some others.
Italy's Economy Minister Giulio Tremonti had particularly singled out speculation as a factor behind rising oil prices, saying on Friday that "on top of the barrel (of oil) there is a magnum of speculative champagne."
Paulson said there were no short-term solutions but said oil users should "avoid subsidies and other market-distorting policies" while suppliers needed to open up their economies to more oil-market investment.
"Producers need to increase output and capacity," he said.
Paulson said that soaring prices for both oil and food prices were a key topic for the G8 ministers and urged that wealthy countries offer emergency food assistance to help the hungry.
He said developing countries should replace general food subsidies with better-targeted ones and drop export restrictions, and added that it would help if negotiators could finally bring Doha trade talks to a successful conclusion.
The G8 finance chiefs met to set an agenda for a July meeting of political leaders from their countries, which will also take place in Japan. Paulson acknowledged that oil and food price inflation were turning people against globalisation, the term used to describe increasingly intertwined worldwide markets.
But he insisted that would be a mistake.
"A shift inward would lead to economic stagnation and would cost millions of jobs, deter foreign investment, curtail growth, and increase the cost of many goods and services purchased by American households," Paulson said.
He claimed there was significant support among the G8 for a proposed Clean Technology Fund that would help poorer countries buy state-of-the-art anti-pollution equipment and so reduce greenhouse gases that damage the environment.
The fund, up to $10 billion (Dh36.8 billion), is to be financed by both developed and developing nations and Paulson said the Bush administration was asking Congress to approve $2 billion (Dh7.36 billion) for it over three years.