World on track for solid growth in 2007

Washington, Jan 17: The global economy is enjoying one of its most sustained periods of growth since World War Two and the risks of an upset have diminished, International Monetary Fund Managing Director Rodrigo Rato said on Tuesday.

''After four consecutive years of strong growth, what we expect is that global growth will remain solid in 2007, approaching 5 percent,'' he told a news conference.

''This represents very significant expansion of the global economy and probably the longest ... sustained period of growth in the post-Bretton Woods era,'' Rato said.

''Although the US economy has slowed down, in large part because of a continued weaker housing market, what I can say now is that a soft landing seems more assured as lower energy prices have supported employment growth and consumption.'' In an interview with sources, Rato said data showed that the correction in the US housing market may be leveling off but cautioned it was still too early to make a judgment call.

''Some people were of the view in November that the housing correction was going to be a big drop with no end in sight,'' Rato said, ''Well, things don't seem that way now and we don't see a dramatic correction taking place,'' he added.

''In fact, the end of that correction may be in sight and everybody, including us, needs to keep an eye on this issue,'' Rato said.

He said the IMF had cut its 2007 price estimate for oil to a barrel from a September estimate of .50.

''Our forecast for this year is now a barrel, lower than it was just a few weeks ago,'' he said as oil prices fell to a barrel, a fall of over 16 percent since the end of last year.

''We see in the futures market a pickup to a barrel in the medium term,'' he said, adding oil prices were still high.

''There is still a good chance for oil producing countries to benefit but it will still require that countries look seriously at their energy policies,'' he said, adding that global oil markets needed to be more transparent, which would help ease price volatility.

IMBALANCES LESS IMMINENT

Addressing reporters, Rato conceded there were risks to global growth, notably from imbalances like the United States' huge trade deficit with key emerging economies like China, which is only slowly moving toward currency flexibility.

''With respect to global imbalances, they might be less imminent, but they are still a significant risk to the world economy if a disorderly adjustment would occur. And in that respect I would like to flag that the risk of protectionism seems to be on the rise,'' Rato said.

Rato said that ''spillovers to other economies from slower U.S. growth have so far at least been minimal'' pointing to a broadening economic recovery in Europe and growth in Japan.

He said there were threats to this optimistic outlook, but lower energy prices had made them look less menacing.

Rato said the increasing chances the U.S. economy will manage a ''soft landing,'' essentially slowing without tumbling into recession, raised Japan's prospects for being able to sustain a recovery. But he said Japan should do more to boost consumer spending, which would make it less reliant on exports.

He repeated that China, now one of the key drivers of global growth, should let its yuan currency rise in value both for the sake of its own stability and to keep imbalances from slowing global growth.

''They need to increase the liberalization of their financial system (and) also to use more forcefully their own exchange rate regime to allow market forces to determine prices (and) allocations of resources in the Chinese economy more freely,'' he said.

Among developed countries in the Group of Seven, Rato said policy-makers need to remain vigilant on inflation even though lower oil prices are helping them do the job.

''Monetary policy in advanced economies must continue to maintain an appropriate balance between risk of a sharper-than-expected slowdown and a possible resurgence on inflation as output gaps and labor markets are very tight,'' Rato said.

REUTERS