The world economy is on track for a fifth year of strong growth and risks of an upset are low, central bankers from the world's leading economies agreed yesterday.
At talks hosted by the Bank for International Settlements, Group of 10 chairman Jean-Claude Trichet said the outlook for this year was very encouraging.
"We continue to observe in the baseline, growth, which is one of the most encouraging we have observed," he told a news conference. "[ Risks] are of a low probability. . . but each of these risks, if they would materialise, would be grave." Central bankers could not afford to be complacent, however, given that inflation pressures remained at a global level and liquidity was abundant.
"We do not declare victory. We do have to remain alert," he said. He added, though, that the current period of high liquidity was exceptional and due to savings growth outpacing investment.
Mr Trichet cited a disorderly unwinding of global imbalances and market underpricing of risk, plus the outlook for oil and commodity prices as dangers to growth, along with a trend to more protectionism in trade and foreign investment. "It would be very, very damaging if this risk was to materialise," he said. "So we warn very, very strongly of protectionism."
The meetings were also attended by Bank of Japan governor Toshihiko Fukui and US Federal Reserve chairman Ben Bernanke. Economists question whether a US housing market slowdown, the danger of further oil price increases or a possible US dollar rout would ripple through the rest of the world economy and upend an otherwise robust global picture. But Mr Trichet played down these dangers, saying central bankers expected the slowing of growth in the US to be limited, and domestic dynamism elsewhere - including in the euro zone - meant the global economy would absorb the cooling.
The upbeat assessment was shared by central bankers including Canada's David Dodge and Argentina's Martin Redrado, who said Latin America was heading for a "very strong year".
Mr Trichet said this year's global growth could be similar to last year, perhaps a bit lower - in line with the International Monetary Fund's expectations for growth to ease to 4.9 per cent this year from 5.1 per cent in 2006.
All the major central banks have been raising interest rates. But investors are uncertain over how much monetary tightening is in store this year, particularly from the Federal Reserve which has paused since last June after 17 increases.
IMF managing director Rodrigo Rato said it was possible that inflation risks would require more rate tightening by the European Central Bank - which Mr Trichet heads - and the Federal Reserve. - (Reuters)
