Economy recovering, say finance chiefs

WORLD finance chiefs meeting in Washington this week will express satisfaction with a rebounding global economy, but also highlight risks from surging oil prices, turmoil in Iraq and other factors.

Meetings this week of the Group of Seven finance officials and annual gatherings of the International Monetary Fund and World Bank also are expected to give greater recognition to China’s economic clout, and to discuss further debt relief to the world’s poorest nations.

IMF managing director Rodrigo Rato said recently the organisation was likely to upgrade its forecast for global economic growth.

He said the outlook for 2004, set to be released today, would be “slightly above” the April forecast of 4.6%.

Rato noted however that “some downside risks have increased,” including a recent spike in crude oil prices.

But he said that even though some recent economic data had been below expectations, “the recovery should continue in 2004 and through 2005.”

A recent cooling trend in the United States and some other countries, however, has given pause to some economic forecasters.

“The slowdown was most pronounced in the United States and Japan, but also evident in many other industrialised economies,” said Nariman Behravesh, chief economist for the economics firm Global Insight.

Behravesh said while global growth probably peaked earlier this year, “we do not expect that the recent ‘soft patch’ augurs the beginning of a much deeper downturn.”

He said the rise in oil prices had only a small impact on economic growth, China was still growing and the US economy “will probably not run out of steam soon.”

But Morgan Stanley’s chief economist Stephen Roach sees a much more troubling economic picture.

“The world economy is on a collision course,” he said in an essay.

“With the world’s growth dynamic now being effectively driven by just one consumer, America, and just one producer, China, the odds are growing short that such an increasingly tenuous arrangement can be sustained.”

The IMF, which holds its annual meetings over the weekend along with its sister institution, the World Bank, is expected to repeat its call for the United States to cut its fiscal and trade deficits, and for Europe and Japan to boost economic growth.

Economists say the US current account and budget deficits are a major threat, which could lead to a dollar collapse that creates economic turbulence.