G-7 lauds world's growth sans inflation

G-7 lauds world's growth sans inflation
William Mallard

TOKYO, JAN 22: The world's leading industrial powers congratulated themselves on Saturday on a brighter global economic outlook but said they must seek to make growth more balanced and were worried about the strength of the yen.

Finance ministers and central bank chiefs of the Group of Seven nations said after a one-day meeting that prospects had improved for world growth without inflation, with the US winning high praise for its near record-long economic boom and historically low inflation. But discord among the G7 over whose economy posed the greatest risk to continued global prosperity simmered in the background with an expression of concern over whether Japan could succeed in a sustained recovery. "We see improved prospects for non-inflationary growth in the major industrial economies and the world economy as a whole," they said in a communique.

"The challenge remains to secure a more balanced pattern of growth among our economies that is important to sustaining the expansion," it said.

The finance ministers welcomed recovery in Europe but were cautious, saying structural change was important. They said they shared Japan's concerns about the potential impact of an appreciating yen on the Japanese and world economies.

"We welcomed the reaffirmation by the Japanese monetary authorities of their intention to conduct policies appropriately in view of their concern, which we share, about the potential impact of the yen appreciation for the Japanese economy and the world economy," the communique said.

Financial markets had been on tenterhooks over whether the G7 would again say it shares Japan's concern over the yen. A statement by the G7 after its previous meeting last September has helped to stabilise the yen exchange rate.

Japan had been strenuously seeking G7 support for efforts to combat the strength of the yen, which it fears could derail the country's tentative recovery. In return for the expression of concern, Japan promised that the Bank of Japan would keep interest rates virtually at zero until recovery is entrenched.

Bank of Japan Governor Masaru Hayami told a news conference that none of his rich nation partners had requested Japan to ease credit further. The G7 met as the US economy roars towards a record-long economic expansion, Japan creeps out of its worst recession in half a century and Europe, too, enjoys an economic upturn.

But the United States, complaining it is tired of being the world's sole engine of growth, wants Japan and Europe to set their sights higher.

"You can't have balanced global growth without more rapid growth in both Europe and Japan," US Treasury Secretary Lawrence Summers said on the eve of the talks.

But Japan and Europe fret that an overcharged US economy and stock market could stumble and upset the global recovery. The ministers said US policies aimed to preserve the conditions for sustainable growth through "strong fiscal conditions, prudent monetary policy and...increasing national saving". The statement made no reference to the euro, despite the persistent weakness of Europe's year-old single currency. The United States, with a ballooning trade deficit in an election year, had wanted the G7 to call for a recovery in the euro, whose weakness is boosting European exports to America.