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Global Economy in Good Shape, G-7 Says

April 22, 2006|From Bloomberg News

The Group of 7 industrial nations said Friday that the global economy was in strong shape and that inflation was under control even as the price of oil rose to a record.

"The strong global economic expansion continues into its fourth year and the outlook remains favorable," G-7 finance ministers and central bank governors said in a draft statement in Washington. "Inflation remains contained despite high oil prices and global growth is buoyant."

The world economy is on its surest footing since the start of the decade as economies in Japan and the euro region pick up, while the U.S. probably enjoyed the fastest quarterly expansion in more than two years.

The International Monetary Fund this week raised its forecast for global economic growth in 2006 to 4.9% from a September prediction of 4.3%. At the same time, the G-7 said it was worried about oil prices, protectionism and imbalances reflected by the U.S. current account deficit and China's surplus.

The G-7 represents almost two-thirds of the world economy, comprising the U.S., Japan, Germany, Britain, France, Italy and Canada. U.S. Treasury Secretary John W. Snow, European Central Bank President Jean-Claude Trichet and Japanese Finance Minister Sadakazu Tanigaki were among officials meeting in Washington.

With oil jumping $1.48 to an all-time high of $75.17 a barrel Friday on the New York Mercantile Exchange, the G-7 draft said energy prices remained a risk to the economic outlook.

Carl Weinberg, chief economist at High Frequency Economics in Valhalla, N.Y., calculates that each $10 increase in the price of a barrel of oil knocks 0.5 percentage point off growth in the G-7.

As economies in Europe and Japan rebound, officials may say the onus is on China to do more to address disparities in global trade. Snow and other ministers, including France's Thierry Breton, argue that China is contributing to the trade and current account deficits by limiting the appreciation in its currency, the yuan.

The statement's language on China and its currency is still being discussed, the draft says.

The draft describes "excess volatility" in exchange rates as undesirable, and says the group will monitor currencies and cooperate where necessary. The language is identical to the last time the ministers and central bankers met, in London in December.

China should allow greater flexibility in its currency, the yuan, according to the preliminary statement.

The G-7 gathering followed a meeting Thursday between President Bush and Chinese President Hu Jintao at the White House that did little to narrow differences over China's managed exchange-rate system.

Bush said after the meeting that he hoped his Chinese counterpart would allow "more appreciation in the future."

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