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'The US could slow the world down'

Top world finance ministers warn on Saturday that the global economy faces growing threats from a US housing slump and credit crunch.
By HT Correspondent | AFP, Tokyo
UPDATED ON FEB 09, 2008 08:39 PM IST

Top world finance ministers warned on Saturday that the global economy faces growing threats from a US housing slump and credit crunch and said they were ready to take remedial action if needed.

But the finance chiefs from the Group of Seven industrialised nations promised 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. Paulson said that he had not urged other G7 nations to take measures to stimulate their demand, despite earlier signs from Washington that he would. “Every country is different and every country has a different economic

situation,” he said.

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.

“Going forward, we will continue to watch developments closely and will continue to take appropriate actions, individually and collectively, to secure stability and growth in our economies,” they said.

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

They also urged world oil producers to boost their output to rein in soaring crude prices and called on China to allow its currency to appreciate more quickly.

But analysts said that the G7's statement had provided little 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 market 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.

But they stopped short of announcing any concrete new measures to try to bolster their economies or stock markets.

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 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 renewed a call on China to allow faster appreciation of the yuan to try to ease trade imbalances with the rapidly growing Asian nation.

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