G-7 finance ministers warn global growth at risk from oil prices, inflationary pressures
LONDON – Economic officials from the world’s richest countries said Saturday that greater flexibility in China’s exchange rate would improve global stability and warned that global economic growth is at risk from high oil prices, protectionism and inflationary pressures.In their joint communique, finance ministers and central bank governors from the Group of Seven nations said that excess volatility and disorderly movements in exchange rates are undesirable for economic growth.”We continue to monitor exchange markets closely and cooperate as appropriate,” they said. “We expect that further flexible implementation of China’s currency system would improve the functioning and stability of the global economy and the international monetary system.”The statement appeared to go a step further than the group’s communique following its September meeting, which welcomed China’s decision to let the yuan trade more freely but stopped short of pressing for further reforms.However, the latest statement did not exert as strong pressure on China as some participants had hoped. Canadian Finance Minister Ralph Goodale said earlier that the G-7 would urge more progress on the flexibility of China’s foreign exchange regime.”The fact that some more flexibility is beginning to be shown by China in particular is very welcome,” Goodale said. “However, it would be our common view that further and better progress is required.”Following previous pressure from the G-7, particularly the United States, China announced in July that it was letting its currency, which had been pegged tightly to the dollar, to rise in value by 2.1 percent.At the time, China said it would let the currency fluctuate by as much as 0.3 percent on a daily basis. However, over the past four months, the Chinese yuan has risen by only an additional 0.3 percent, prompting calls from some leaders for a further revaluation.Chinese Finance Minister Jin Renqing took part in Saturday’s meeting with his counterparts in the G-7 – the United States, Britain, Canada, France, Germany, Italy and Japan – and said they had discussions on trade and the need to improve energy efficiency. He made no reference to the yuan or whether it was discussed.The G-7 leaders said that overall global growth remains and should continue to be solid, although it has been slowed by high and volatile oil prices.”Risks include rising protectionist sentiment, the possibility of increasing inflationary pressures and growing global imbalances, which have been exacerbated by high oil prices,” they said.The bloc said that some steps had already been taken to address these imbalances but “vigorous, mutually reinforcing action is now needed from the G-7 and other countries in a way that maximizes sustained growth.”The G-7 has also been warning of the dangers of skewed trade and investment since 2003, but this time did not single out the hefty U.S. trade deficits in its statement.Alan Greenspan, making his 55th and last appearance at a G-7 gathering after 18 years as chairman of the U.S. Federal Reserve, warned Friday of the threats posed by rising budget deficits and protectionism.The ministers repeated earlier calls for more investment in exploration, production, energy infrastructure and refinery capacity as part of their attempts to improve stability of the oil market and the global energy outlook.The group welcomed the launch of a joint oil database and stressed the need for further improvement in the transparency of supply and demand on the oil market, comments that echoed the bloc’s statement following the last meeting in September.Officials said the group also discussed interest rates following the European Central Bank’s decision Thursday to increase rates by a quarter of a percentage point to 2.25 percent. The bank had acted despite warnings from some European leaders that it could harm already weak economic growth in the region.The issue was not addressed in the formal communique.Finance ministers from Russia, Brazil, Israel and the Palestinian Authority also attended the meeting.