June 10, 2006

G8 stays optimistic on global growth despite jitters

By Gleb Bryanski and Swaha Pattanaik

ST PETERSBURG, Russia (Reuters) - Finance ministers from
the G8 economic powers predicted a year of strong economic
growth on Saturday despite high oil prices, skidding U.S. stock
prices, rising interest rates and fears of inflation.

Meeting in St Petersburg, the ministers said in a
communiqu© that economic growth was healthy and becoming more
broadly based despite oil at $70 a barrel and other imbalances
-- one of which is the big U.S. trade deficit, another China's
trade surplus.

Financial markets seem more alarmed than the G8
politicians. The Dow Jones stock market index finished its
worst week in a year on Friday as investors, rattled by
inflation warnings and fears that U.S. growth will soon slow,
sold off.

The G8 meeting, to prepare for a Group summit next month,
called for progress in the stalled Doha Round of trade
liberalization talks but the words rang hollow as countries
such as Brazil said they could fail if developed countries did
not give more ground.

The world economy is forecast by the International Monetary
Fund to grow 4.9 percent this year, the best since 1976 apart
from an exceptionally strong 2004, with growth boosted by
rising stars like India and China.

"We share the view that despite some volatility on
financial markets the world economy is developing very
positively," German Finance Minister Peer Steinbrueck said.

Britain's Gordon Brown acknowledged that there were
mounting inflationary pressures because of oil prices that have
doubled in the last two years. "We have got to be vigilant," he

IMF chief Rodrigo Rato, attending the talks too, said the
dollar, which has been somewhat weaker of late versus other
currencies, was now at more appropriate levels and that China
would benefit from a more flexible currency system.

French Finance Minister Thierry Breton, fearing too strong
a euro will hurt exports, welcomed recent developments in
exchange rates. The euro started the year at around $1.18, rose
to around $1.30 in mid-May or by about 10 percent, and has
eased in recent days to around $1.26.

China, the world's fourth-largest economy and second
largest oil consumer after the United States, was among several
non-G8 countries invited the deliberations in sunny St.
Petersburg and was represented by Jin Renqing, finance

The G8 countries, comprising host Russia, the United
States, Canada, Japan, Germany, Britain, France and Italy,
called for efforts to find alternatives to oil and more secure
supplies of energy generally, a point of tension within their
own ranks.

"We discussed the current situation in the energy markets
and the risks that high oil prices pose for the global economy
going forward," the communiqu© said, urging more investment in
the sector by both oil producing importing countries.

The talks pave the way for a mid-July summit that marks
Russia's first turn at the helm of the Group of Eight, a club
into which it was admitted after the fall of the Soviet Union.

President Vladimir Putin has made energy security the top
issue of the summit in St Petersburg on July 15-17, but is
under pressure to prove a reliable partner after Russia
temporarily closed the taps on gas exports to Ukraine early
this year.

Russian Finance Minister Alexei Kudrin, hosting the meeting
on Saturday, urged energy consuming nations to guarantee
greater stability of demand to help exporters meet consumers'


The ministers sought to keep up political pressure for more
efforts to break a deadlock in world trade talks.

"We agreed on the importance for global growth of an
ambitious outcome from the Doha Development Round and recognize
that urgent progress is needed for its achievement," it said.

The challenge that entails was immediately evident.

Brazilian Finance Minister Guido Mantega said nothing would
happen if there were no concessions on aid to farmers, where
Europe and the United States are in the firing line.

Mantega, saying he was talking behalf of China and India as
well as his country, told reporters: "Our three countries have
agreed that if there are no strong indicators of these advances
with regard to agriculture the Doha round will fail.

"Both Brazil and China have shown willingness to be more
flexible; Brazil with industrial products, China on services.
But this will not take place unless the developed countries
have a stronger commitment to liberalize their economies on