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Mon, Sep 19, 2005 - Page 12 News List

Pricey oil, risky growth on the


World financial leaders will descend on Washington this week to review threats to global growth posed by high oil prices and faltering progress toward easing the debts of the poorest nations.

The coming weekend will see the annual meetings of the International Monetary Fund (IMF) and World Bank, with finance ministers from the powerful Group of Seven nations holding their own talks on the sidelines.

For the G7, oil will be up for debate, as will the trade and currency policies of China, which has been invited to observe the high-powered gathering chaired by US Treasury Secretary John Snow.

"It is likely that we will discuss rising oil prices and global economic trends or economic development," Japanese Vice Finance Minister Koichi Hosokawa told reporters on Friday.

Ahead of the weekend talks, the IMF will on Wednesday release its latest World Economic Outlook report. Leaked accounts to the German press suggest the twice-yearly report will acknowledge the damage being done by high oil prices.

The IMF is set to cut its growth forecast for the world economy for next year by 0.1 of a percentage point to 4.3 percent, the German daily Handelsblatt said.

The report is expected to say that Hurricane Katrina itself will have a negligible impact on the US economy, but that the IMF believes there is a risk it could trigger a series of "second-round effects."

Handelsblatt said it explained that as a result of higher gasoline and heating oil prices, demand among US consumers could fall, which could have a ripple effect worldwide.

In a study for the Institute for International Economics, former IMF chief economist Michael Mussa said that the forecast for growth for next year, unlike for previous years, "has a high degree of risk."

He said that the risk reflected "unusual uncertainty about the course of world energy prices and their economic impact," coupled with a long-awaited shrinkage in the huge US current account deficit and Katrina's effects on the US economy.

A fall in spending by US consumers is long overdue, and when it comes it will slow US demand for imports, Mussa said.

While that would help bring the yawning US deficit down to more manageable levels, it could also hurt exporting nations and thus damage growth prospects worldwide.

In parts of the report already published last week, the IMF reaffirmed calls on exporters like Japan and Germany to do more to help their own domestic demand through deeper structural reforms to their stagnant economies.

And Asian countries, not least China, were urged to further free up their currencies to inject more flexibility into the international system.

Chinese Finance Minister Jin Renqing (金人慶) and central bank governor Zhou Xiaochuan (周小川) have been invited to attend the G7 talks. Snow is expected to emphasize the need for China "to demonstrate that the [currency] regime they've put in place will allow for greater flexibility in the yuan."

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