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G8 sees solid '06 growth, energy a risk: Source

The draft statement says world "growth remains solid and should be maintained in 2006," said a European source at the G8 meet.

india Updated: Feb 11, 2006 20:22 IST
Agence France-Presse
Agence France-Presse

Group of Eight (G8) finance ministers have drawn up a draft communique warning that high, volatile energy prices menace solid world economic growth in 2006, a European source said here Saturday.

The draft statement says world "growth remains solid and should be maintained in 2006," said a European source at the G8, who spoke on condition of anonymity.

But "risks remain, notably high and volatile energy prices," the statement warns, according to the source.

The powerful G8 policymakers were meeting in a heavily guarded hotel near Red Square to put the final touches to the communique, which will be issued after the talks wrap up.

Russia is for the first time hosting its partners from the club of most industrialised powers: Britain, Canada, France, Germany, Italy, Japan and the United States.

But Moscow, which has deep oil and gas resources and has benefitted hugely from high oil prices, has found itself under strong pressure to help ensure smooth world supplies.

Russia shocked many of its partners when it turned off natural gas supplies to Ukraine in January during a dispute over demands for sharply higher prices.

Finance Minister Alexei Kudrin promised Friday that Russia would eventually ratify a 1991 energy charter aimed at facilitating gas flows across Europe and the former Soviet Union. But he gave no timetable for doing so.

Japanese Finance Minister Sadakazu Tanigaki told reporters at the outset of the negotiations here Friday that high oil prices were the gravest risk to global economic growth.

Ministers would press for greater investment in oil production and refining, he said.

The European source said the draft G8 statement seeks greater diversification of energy production and consumption, and for the development of alternative energy sources.

Group of Eight ministers also will repeat a well-worn call for fixing a lopsided world economy, in which the United States runs record trade deficits and Asian countries huge surpluses, the source said.

Leading economists gathered at Davos, Switzerland last month said US deficits and a possible oil supply shock were weighing on a world economy that will be driven largely by China during 2006.

"This is the year to watch out carefully for the end of the great American spending binge," Stephen Roach, chief economist at US bank Morgan Stanley, warned at the World Economic Forum.

Japan, however, comes to the G8 in Russia with its economy in the best shape in years, analysts said.

The central Bank of Japan is widely expected in April to end its five-year "quantitative easing" policy by which it floods the system with cash in hopes of stimulating the economy.

Standard and Poor's rating agency said this week there was a "diminishing sense of crisis" in Japan, with economic players increasingly confident about the economy and the public sector on the road to reform.

And finance ministers in the 12-country eurozone have voiced growing optimism about the prospects for growth although they, too, were worried about the impact of high oil prices.

The European Commission estimates eurozone growth hit 1.3 percent in 2005 and is set to reach 1.9 per cent this year as domestic demand strengthens, especially in regional heavyweight Germany.

First Published: Feb 11, 2006 20:22 IST