G-8 says `vigorous action' needed to counter slowdown

The Group of Eight industrial nations said "vigorous action" is needed to insulate a weakening world economy from high oil prices and imbalances in growth and trade.

"Growth is expected to remain robust, although at a more moderate pace in 2005," the G-8's finance ministers said yesterday in London. "Vigorous action is required by each country to support a smooth adjustment to more balanced growth." The Organization for Economic Cooperation and Development on May 24 cut its forecasts for global expansion this year and next as oil prices stay above US$50 a barrel, tempering consumer demand and increasing costs for companies. The statement by the G-8, which accounts for two thirds of the world economy, called oil prices a "significant concern." The US needs to narrow its budget deficit, Europe boost demand at home by making its markets more flexible, and Japan both, the statement said. The economic discussion today was overshadowed by a deal to wipe out the billions of dollars owed to international lenders by the world's poorest nations.

The G-8 may have trouble reaching its policy goals, said Monica Fan, head of global foreign-exchange research at RBC Capital Markets Ltd. in London. "The group is certainly worried about growth, but most of its statement is fairly shallow rhetoric," she said, noting much of it was a repetition from previous meetings.

The G-8 comprises the US, Japan, Germany, France, UK, Canada, Italy and Russia. Its heads of state convene in Gleneagles, Scotland, on July 6-8.

The economies of euro region and Japan will grow at less than half the pace of the US this year, the OECD said. That disparity has resulted in a record US trade gap, which economists say may undermine the international economy if unchecked. The US current account deficit reached an unprecedented US$666 billion last year and is likely to widen this year.

With oil prices 47 percent higher than a year ago, the finance ministers recommended oil producers and consumers try to balance demand and supply by better tracking reserves and using the fuel more efficiently. Oil cost US$53.54 a barrel at the end of New York trading yesterday.

"Oil prices have developed in such a way that they affect the world economy," said German Finance Minister Hans Eichel.

The Paris-based OECD expects the economies of its 30 member nations to expand 2.6 percent this year, down from its 2.9 percent forecast of November and last year's 3.4 percent. It also reduced its prediction for next year's growth to 2.8 percent from 3.1 percent.

European governments need to introduce "further structural reforms" to encourage growth, the G-8 statement said. The gain in oil prices and job losses are damping business and consumer confidence.