Home Economy Emerging nations spark world economy: G7

Emerging nations spark world economy: G7


Washington : The world economy remains strong despite turmoil in financial markets, high oil prices and a weak US housing market that are holding back growth, finance officials from the seven leading industrial nations said.

After a day of talks, Group of Seven (G7) finance ministers and central bankers credited powerful growth in emerging economies with offsetting weakness in rich countries, especially the US.

Financial markets are recovering from this year’s crisis sparked by the meltdown in risky US home mortgages, though “uneven conditions are likely to persist for some time” and will require vigilance, the officials said in a statement.

Risks highlighted by the sub prime crisis must be addressed, the group’s statement said. On that front, the officials heard a report from Italian central banker Mario Draghi, who chairs a G7 panel that is expected to propose tighter oversight rules by next spring.

Gathered before weekend meetings of the International Monetary Fund (IMF) and the World Bank in Washington, the finance chiefs struck an upbeat tone — even after a week of US stock market losses.

US Treasury Secretary Henry Paulson reiterated that he views the continuing US housing decline as the biggest risk to the economy.

But he said he told his colleagues that he believes the sub prime mortgage crisis is contained and the US economy, the world’s largest, will continue to grow.

“So far there is very little evidence that it’s bleeding over into other areas,” he told reporters.

Record oil prices are another potential threat to growth, but the German central bank’s head said he expects this week’s peaks to be temporary.

“Economic growth is not stalling,” Bundesbank president Axel Weber told reporters.

With the world economy in its fifth year of expansion, “economic fundamentals continue to be strong and emerging markets are providing critical impetus to the strength of the world economy”, the G7 group said.

Still, the financial market turbulence, high oil prices and weakness in the US housing sector “will likely moderate this growth”, the statement said.

The G7 is the US, Germany, Britain, France, Japan, Italy and Canada.

The leaders of Europe’s three biggest economies — Germany, France and Britain — were a bit more blunt, suggesting Friday that financial markets need tighter rules to track “risks to stability”.

China faced renewed criticism for its currency’s exchange rate, which the US and Europe charge Beijing is keeping artificially low to boost exports. Beijing must do more to let the renminbi appreciate, the G7 statement said.

China also figures in another area of concern: the rising power of government-backed funds in oil-rich and emerging nations that are buying into Western companies, a trend that has prompted calls for more oversight and transparency.

European and other G7 nations are seeking more transparency on the funds’ dealings and ways to keep strategic industries out of reach.

Officials from eight nations, including China, Russia, Saudi Arabia and Singapore, were invited for special talks late Friday with the G7 group on state investment funds. German deputy finance minister Thomas Mirow called it “a very sensitive topic”.

G7 officials also called for major reforms at the International Monetary Fund (IMF), saying the 185-nation crisis-lending agency must curb spending and give poor and emerging nations a greater say in decision-making.

The Washington-based agency, often criticised for imposing stringent market reforms in return for emergency financial aid to struggling governments, has increasingly lost customers — and interest income — as nations turn to other sources of finance.