Tokyo: Top world finance ministers warned Saturday that the global economy faces growing threats from a US housing slump and credit crunch, urging banks to come clean on their subprime loan losses.
In a draft statement issued from a meeting on 9 February 2008 the finance chiefs from the G7 industrialized nations said their economies were set to lose steam in the near future but remained fundamentally solid.
“In all our economies, to varying degrees, growth is expected to slow somewhat in the short-term, reflecting wider global economic and financial developments,” according to the statement obtained by AFP.
The US economy faces growing risks with the potential for a further deterioration in the housing sector, according to the draft.
“In the United States, output and employment growth have slowed considerably and risks have become more skewed to the downside,” said the G7, which comprises of Britain, Canada, France, Germany, Italy, Japan and the United States.
The ministers warned that global growth may be curbed by a further deterioration of the US housing market, tighter credit, high oil and commodity prices and growing inflationary pressures.
A US housing slump, led by rising mortgage defaults among “subprime” or high-risk customers, has triggered a credit crunch that has wreaked havoc on world markets in recent months.
The finance ministers urged “prompt and full disclosure by financial institutions of their losses” from the US subprime crisis.
Banks, particularly in the United States and Europe, have suffered heavy losses from their exposure to securities backed by troubled US mortgages.
The G7 finance ministers “stand ready to take any further action necessary to enhance stability in the financial market,” the draft said.
But it made no mention of coordinated remedial action to try to bolster their economies or stock markets.
The US government has prepared a 150-billion-dollar package to stimulate its flagging economy, while the Federal Reserve has slashed interest rates several times since last September.
But analysts say other G7 members have more limited room for measures to stimulate demand, particularly Japan, the world’s second-largest economy, which has huge national debts and interest rates of just 0.5%.
The G7 ministers also urged world oil producers to boost their output to rein in soaring crude prices.
While high oil prices largely reflect rising world demand, “geopolitical concerns” are also a factor, the statement said.
“We encourage oil-producing countries to raise production, and reiterate the need to enhance refinery capacity and improve energy efficiency,” it added.
World oil prices struck a high above 100 dollars at the start of the year, but they have since cooled on market worries that a US recession and slowing global economic growth could curb demand for energy.
The final version of the G7 statement was also expected to renew a call for China to allow a faster appreciation of the yuan.
There may be calls behind closed doors from European ministers for action to try to stem the dollar’s decline, analysts said.
But publicly the G7 is unlikely to shift from its previous official stance that foreign exchange rates should reflect economic fundamentals and that excess volatility is undesirable, they added.
Finance ministers from China, Indonesia, South Korea and Russia have also been invited to join the “outreach” dinner that the G7 now regularly organizes on the sidelines of its gatherings.
The role of ratings agencies, which have been criticized for not flagging up the impending global credit woes, is also expected to be discussed by the G7, along with efforts to tackle climate change.