The world's top economies on Saturday promised coordinated action to restore confidence in global markets as financial turmoil slows U.S. growth, but with each country having different priorities, they didn't offer a specific remedy.
The world’s top economies on Saturday promised coordinated action to restore confidence in global markets as financial turmoil slows U.S. growth, but with each country having different priorities, they didn’t offer a specific remedy.
The Group of Seven industrialized countries warned of risks in the troubled American economy and housing sector, but leavened that with assurances that the world’s biggest economy would grow this year, albeit at a slower pace.
World financial markets have been battered amid worries about a possible U.S. recession and uncertainty about the subprime mortgage crisis that has led to billions in losses at major banks. A main thrust of Saturday’s meeting was to reassure the world that the U.S. wasn’t in recession.
“I believe that we’re going to keep growing,” said U.S. Treasury Secretary Henry Paulson. “If you’re growing, you’re not in recession.”
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The officials _ from the United States, Japan, Germany, France, Britain, Italy and Canada _ pledged to take actions on their own and together to “secure stability and growth in our economies,” without outlining specifics.
The G-7 had faced calls for increased coordinated action to deal with the U.S. housing problems in subprime mortgage loans, financial market turmoil, heightened inflation expectations, and high oil and commodity prices.
Paulson, however, dismissed speculation that Washington had encouraged its trading partners to follow the U.S. lead to boost demand by cutting interest rates and offering tax rebates.
“Every country’s different … and every country needs to focus on their own economic situation,” he told reporters after the meeting. “The discussion was on really how do we minimize the spillover from what’s going on in the capital markets to the broader global economy.”
Congress on Thursday passed a $168 billion stimulus package of tax rebates for American consumers, business tax write-offs and other measures. The Federal Reserve lowered a key interest rate to 3 percent late last month after a series of cuts totaling 1.25 points.
Such moves, however, have not been taken by many of America’s main trading partners. The European Central Bank, which sets policy for the euro-zone, left rates alone last week, and Japan has little room to lower its key rate of 0.5 percent. The Bank of England, however, on Thursday cut its rate a quarter point to 5.25 percent.
While the U.S. was focused on fueling growth, European Central Bank President Jean-Claude Trichet said his main goal was avoiding inflation.
“We will do whatever we need to do to be credible in maintaining price stability in the medium term,” he told reporters after the meeting. He added that European economies were basically sound despite uncertainty sown by volatile financial markets.
Instability in exchange rates _ particularly the fall of the dollar and strength of the euro _ has been a growing concern around the globe. But the group shied away from an expanded statement on currencies, only saying that excess volatility was undesirable. The finance ministers also reiterated a call for China to allow the yuan to rise.
“There wasn’t a detailed discussion on exchange rates,” conceded British Chancellor of the Exchequer Alistair Darling.
Still, the signs of slowdown in the U.S. are severe. The government recently reported that the economy shed 17,000 jobs in January, the first monthly job loss in more than four years. Growth slowed to an anemic 0.6 percent in the final three months of last year.
“The world confronts a more challenging and uncertain environment than when we met last October, though its fundamentals as a whole remain solid,” G-7 finance ministers and central bank governors said in a joint statement.
The International Monetary Fund forecasts U.S. economic growth will slow to 1.5 percent in 2008, down from an estimated 2.2 percent in 2007. Paulson said the stimulus package was estimated to generate up to 600,000 jobs this year.
Also Saturday, the Financial Stability Forum, made up of financial authorities from various countries, issued an interim report outline steps to bolster confidence in the banking system and preventing the credit crunch from spinning out of control.
The G7 ministers voiced support for promoting prompt and full disclosure by financial institutions of their losses and other steps to strengthen the banking system.