G7 finance chiefs see growing risks to world economy

Business Materials 10 February 2008 02:29 (UTC +04:00)

( AFP )- Top world finance ministers warned Saturday that the global economy faces growing threats from a US housing slump and credit crunch, pledging to take remedial action if needed.

But the finance chiefs from the Group of Seven industrialised nations announced no new concrete measures to shore up their economies and markets in light of the recent subprime loan crisis.

The G7 -- Britain, China, France, Germany, Italy, Japan and the United States -- warned in a joint statement after a one-day meeting in Tokyo that "risks have become more skewed to the downside" in the United States.

"In all our economies, to varying degrees, growth is expected to slow somewhat in the short-term, reflecting wider global economic and financial developments," said the statement.

But US Treasury Secretary Henry Paulson said that he was confident that the US economy would avoid a recession, even though growth was likely to slow in the short term.

"I believe that we are going to keep growing. If you are growing, you are not in recession," he told reporters.

G7 ministers pledged to work together closely to try to ensure the stability of their economies and markets, but ministers said that each nation would decide on its own policies.

"Every country is different and every country has a different economic situation," said Paulson.

A US housing slump, led by rising mortgage defaults among "subprime" or high-risk customers, has triggered a credit crunch that has wreaked havoc on world markets in recent months.

The G7 ministers warned that global growth may be curbed by a further deterioration of the US housing market, tighter credit, high oil and commodity prices and growing inflationary pressures.

The ministers urged banks to come clean on their full subprime loan losses and called for greater financial market transparency.

But analysts said that the G7's statement had provided little obvious cheer for investors.

"There is nothing new and therefore the market impact will be limited," said Ryohei Muramatsu, head of Group Treasury Asia at Commerzbank in Tokyo.

"The market needs a quick fix to address two issues at the same time: the collapse of the financial markets and an economy (in the US) that is headed towards a recession," he added.

Banks, particularly in the United States and Europe, have suffered heavy losses from their exposure to securities backed by troubled US mortgages.

The finance ministers urged "prompt and full disclosure by financial institutions of their losses" from the US subprime crisis.

International Monetary Fund director general Dominique Strauss-Kahn renewed his call for countries to consider fiscal measures to boost demand in the face of slowing economic growth.

"Some countries where you have fiscal soundness and current account surpluses have room to do something," he said.

The US government has prepared a 150-billion-dollar package to stimulate its flagging economy, while the Federal Reserve has slashed interest rates several times since last September.

But analysts say other G7 members have a more limited room for measures to stimulate demand, particularly Japan, the world's second-largest economy, which has huge national debts and interest rates of just 0.5 percent.

"It is the responsibility of each country's authorities to decide an appropriate policy" based on the various risks facing their economies, Bank of Japan governor Toshihiko Fukui told reporters.

The G7 nations renewed a call for China to allow a faster appreciation of the yuan, which they see as undervalued, giving an unfair advantage to Chinese exporters.

They reiterated that foreign exchange rates should reflect fundamentals, but made no mention of the weakness of the dollar despite European concerns about the soaring euro.

The G7 ministers also urged world oil producers to boost their output to rein in soaring crude prices.