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China, oil impact on global growth on G10 agenda

BASEL: Central bankers will assess the growing role of emerging nations such as China whose rapid growth has pushed oil prices to heights threatening U.S. and European economies at their meetings here on Monday.

China’s red-hot economy has become a major factor on global markets as it sucks in imports to manufacture cheap exports. Its rapid growth drives up the price of oil and other commodities.

Market speculation has grown intense that China will reform its rigid yuan currency regime to integrate into the world economy.

U.S. and Chinese officials meet in Washington on Monday for discussions that will include foreign exchange. Central bankers from rich and developing nations gathering in this Swiss border town said China, oil and slowdowns in Western countries are all on the agenda for their bi-monthly Group of 10 meeting to evaluate the world outlook.

“We will have wide-ranging discussion on how emerging markets can be better integrated into the global economy,” Bank of Japan governor Toshihiko Fukui told Reuters on Sunday ahead of meetings at the Bank for International Settlements.

Brazil’s central bank governor Henrique Meirelles said there was growing recognition of the importance of developing nations.

“I think that emerging economies play a stronger role in the international economy today than they played in the past, and the projections are that they will play even a stronger role in the future,” he said.

But overshadowing the outlook are oil prices, which pushed towards $60 a barrel last month and are holding around $50.

“The economy in the United States and Europe have signs of a slowdown, due maybe to oil. We will assess this,” said Fukui.

Costly oil has hit business sentiment and output hard in Europe’s largest economy, Germany, where the manufacturing sector contracted in April and the Ifo business sentiment index slipped for the third straight month — often a harbinger of recession.

But Bundesbank Vice President Juergen Stark told Reuters he did not worry about monthly fluctuations and he remains comfortable with the central bank’s forecast for the German economy to expand by around 1.0 percent this year.

Risks to this forecast, however, are whether oil prices resume their steep climb and whether China can succeed in cooling its booming economy, a key export market for Germany, without skidding. “As you expect, they will talk about China, oil and the U.S. economy,” one central bank official said.

Asian finance ministers agreed in Istanbul last week that oil prices posed risks for their economies, a view shared by Group of Seven rich nations at the global level.

Retail demand is slumping in Britain. In the euro zone, European Central Bank President Jean-Claude Trichet, who chairs the G10 meeting has said growth risks are to the downside. reuters

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