G7: Slowing World Economy Remains Sound
Saturday April 28, 9:13 pm Eastern Time
By Alister Bull
<<WASHINGTON (Reuters) - The leaders of the world economy on Saturday delivered an upbeat assessment for global growth that shrugged off the threat of a U.S. slowdown and said that they would stop telling each other what to do.
``Although global growth has slowed over the past year, the foundations for economic expansion are sound,'' said a joint statement issued after a meeting of finance leaders from the Group of Seven industrial nations. ``In fact, the prospects for improving the world standard of living are compelling.''
U.S. Treasury Secretary Paul O'Neill said at a briefing following the meeting that ``there was a sense of real optimism'' on global growth among participants.
The statement from the ministers and central bankers from the Group of Seven countries -- the United States, Britain, Canada, France, Germany, Italy and Japan -- was carefully crafted to shore up confidence that a slowing global economy would not slide into recession.
According to forecasts made this week by the International Monetary Fund, the global economy will grow by 3.2 percent this year after an almost 5.0 percent expansion last year.
NO PRESSURE ON THE ECB
O'Neill said that he had not raised the issue of interest rates in the euro common currency zone and European Central Bank President Wim Duisenberg said separately that there had been no pressure on the bank to ease interest rates.
The ECB had been under fire for refusing to follow other G7 authorities in cutting interest rates this year. The IMF was among those leaning on the ECB to ease policy, saying the central bank should help shelter slowing world growth.
Duisenberg said that the ECB's explanations had been received loud and clear, adding that its caution had been justified by the risks of inflation, which now looked likely to remain above its target range for the entire year.
``We understand that different countries will approach these policies...in different ways. We respect these differences and it is not our intent to give direction to each other,'' Duisenberg said.
He said the ECB now expected inflation to remain above the upper range of its zero-to-two percent price tolerance range until early next year, indicating that its scope to cut interest rates this year was looking slim.
High energy prices were among factors pushing eurozone inflation to 2.6 percent in February and March and the G7 communique made direct reference to a renewed advance in the price of crude oil.
``We recognize that lower energy prices and stable oil markets are important,'' the statement said.
Crude oil has risen back above $25 per barrel and closed on Friday at $27.80 a barrel.
U.S. FUNDAMENTALS SOUND
The finance leaders also said fundamentals of the slowing U.S. economy, the engine of global growth in recent years, were sound. ``In the United States, growth has slowed sharply. However, long-term economic fundamentals...remain strong.''
The statement indicated that the United States, Europe and Japan remain content to give each other space to fix their own problems, saying they would each work to make their economies grow closer to their potential.
U.S. monetary policy should continue to bolster growth in the world's richest economy and maintain price stability, the statement said, adding that U.S. fiscal policy should target boosting long-term fundamentals.
The U.S. Federal Reserve has slashed interest rates by 2 percentage points since the beginning of the year to underpin flagging growth. Congress is considering a tax cut, but the shape and scope of it are the subjects of heated debate.
Without touching on European monetary policy, the statement said that Europe should stimulate growth by implementing structural reforms. Those reforms would include changes to unemployment benefits and tax policies to provide greater incentives for work.
In most of Europe, labor market policies are believed to conspire to keep unemployment rates higher than would otherwise be the case.
On Japan, the ministers said the Bank of Japan should provide enough liquidity to prevent deflation. It added that vigorous financial and corporate sector reforms were needed for a sustainable recovery in the moribund Japanese economy.
Although Washington has publicly called on Europe -- as well as Japan -- to find ways to speed up growth, the expansion of the 12-nation eurozone economy is expected to outpace that of the other economic heavyweights, including the United States, this year.
JAPAN STRUGGLING
According to forecasts released this week by the IMF, the U.S. economy looks set to slow to 1.5 percent growth this year, while Europe is expected to slow to a 2.4 percent expansion. Japan, whose economy has been struggling for a decade, is expected to slow to a sluggish 0.6 percent.
The communique said that both Britain and Canada should continue to support economic growth and job creation, while meeting their inflation targets.
Ministers welcomed the new economic plan by the Turkish government, which is aimed at digging that nation out of a crippling financial crisis. The IMF and World Bank are near agreement on providing Turkey with $10 billion in emergency loans, something the G7 said it supported.
Using standard language, the communique also said that currencies should be in line with economic fundamentals -- meaning there was no change in the G7 stance on foreign exchange.>> |
