G7 says global economy strong; reiterates call for China yuan action
09.16.2006, 12:27 PM
SINGAPORE (XFN-ASIA) - The Group of Seven nations said the global economy remains strong despite a US slowdown but warned that volatile energy prices, inflation and trade protectionism pose risks.
'In our economies, performance remains strong amid moderating growth in the United States,' the G7 ministers said in a statement amowing a meeting in Singapore today.
They said growth in the eurozone and Britain is accelerating and should remain strong, while Canada remains on a strong expansion path and Japan has exited the zero interest rate policy and is seeing a broad-based recovery.
'The positive outlook, however, is not without potential downside risks,' they added, pointing to 'tight and volatile energy markets, rising inflation expectations and the spread of protectionist tendencies.'
They said that high energy prices reflect both rising demand from strong global expansion and concerns about current and future supplies, though the prices have eased recently.
The finance ministers reiterated calls that China should move towards greater currency flexibility, but left the language of their previous statement unchanged.
'Excess volatility and disorderly movements in exchange rates are undesirable for economic growth,' the G7 statement said.
'Greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China, for necessary adjustments to occur,' it said.
Speaking at a news conference after the meeting, US Treasury Secretary Henry Paulson said that China needs a currency 'befitting a major economic leader', urging Beijing to move more quickly toward greater exchange rate flexibility.
But he said he does 'not have a specific target' for the yuan's value, saying 'that would be very presumptuous of me. China is a sovereign nation.'
For his part, Chinese central bank governor Zhou Xiaochuan said that China is open to making its exchange rate regime more flexible at a gradual pace.
'I think China's policy is clear that we are gradually moving towards more flexibility than where it is,' Zhou told a forum on the sidelines of the annual meetings of the International Monetary Fund and World Bank.
China is open to expanding the yuan's floating band if necessary, depending on the movement of cross currency exchange rates and supply-demand conditions in the short- to medium term, he said.
'But right now we are still in a very initial stage of discussion on how we can do it.'
Zhou later told reporters that if market conditions showed a need for a wider trading band for the yuan then 'we may consider a wider band'. He provided no timeframe for such moves.
Asked about Japan, US Treasury Secretary Paulson said Japan deserves 'a great deal of credit for moving forward on a number of economic reforms' and getting out of its 'economic malaise.' But he said Japan 'needs to continue with its reforms.' He had no comment on the Japanese yen.
Asked about the US economic slowdown, Paulson emphasized the growth 'engine' role the US has played and continues to play.
Paulson said the US housing sector has slowed from 'an unsustainable rate,' but said that growth in other sectors is offsetting the housing drag, including commercial real estate, business investment and exports.
The G7 ministers stressed in their statement the importance of advancing multilateral trade liberalization, 'which is essential to enhancing global growth and reducing poverty' and imbalances.
'We urge all parties to show political will and flexibility necessary to resume the Doha Development Round as soon as possible, in order to achieve a comprehensive package in agriculture, industrial products, services, including financial services, intellectual property and WTO trade rules,' they said.
Paulson said G-7 officials were in agreement that protectionist pressures are 'one of the major risks we're going to be dealing with for some time.' He said he will tell WTO's Pascal Lamy that the US 'is willing to make concessions' on farm trade issues to get the Doha Round rejuvenated.
The US Treasury chief also called on the G7 nations to take a tough line on Iran, which he said was 'quite actively involved in financing terrorists.'
He said that G7 ministers and central bankers had 'discussed the need to take action to disrupt terrorist and illicit finance related to specific threats from North Korea and Iran.'
The G7 statement, however, did not name anyone but said simply that 'we agreed to intensify our efforts to combat money laundering, proliferation networks as well as terrorist and illicit financing.'
