Oil a risk to growth, says IMF boss

GLOBAL economic growth will stay above four percent this year, the head of the International Monetary Fund said, but he warned that the high price of oil posed an increasing risk to the outlook.

IMF managing director Rodrigo Rato also said fuel shortages following Hurricane Katrina had shown that the United States needed to raise its oil refining capacity in the long-term.

“World growth is clearly above four percent. The tendency will continue this year and next year,” he said after a one-day meeting with Asia-Pacific finance ministers and central bank governors on regional financial integration.

The IMF, which will release a fresh global growth forecast later this month, said in April world growth would slip to 4.3% from last year’s 5.1%.

“The world is more resilient to quite a rapid increase in oil prices,” he said, adding the price of oil was a clear risk which was increasing, not decreasing.

Oil prices soared to a record high of almost $71 a barrel earlier this week as Hurricane Katrina slammed into the US Gulf Coast.

Mr Rato said it was too early to assess the impact of the hurricane on the US economy, which grew at a 3.3% annual rate in the second quarter, down from 3.8% in the first quarter.

Mr Rato said interest rate levels in Europe were providing sufficient scope for growth but warned of “second-round” effects from oil prices and weakness in some domestic economies.

Second round effects are when workers demand higher wages and businesses raise prices to compensate for increased energy costs, pushing up the wider inflation rate.