Finance chiefs from rich nations were expected to offer reassurances on 13 April that dangers from rising U.S. mortgage defaults and high-risk hedge funds globally were manageable and not a threat to expansion.
Group of Seven finance chiefs were gathering amid predictions the global economy will grow 4.9% this year and again in 2008 after expanding 5.4% in 2006 -- on its best pace since the 1970s.
“The global economic environment continues to be very favourable, but our colleagues will be interested in the health of the U.S. economy, especially against the background of developments in the subprime mortgage sector,” Tim Adams, the U.S. Treasury’s top international hand, said on 13 April.
U.S. Treasury Secretary Henry Paulson will tell other G7 members that “by mid-2007 the worst should be behind us” on housing, Adams said. Essentially, the message will be that global growth is rebalancing successfully as Europe and other areas pick up speed while U.S. growth slows.
The G7 comprises the United States, Britain, Canada, France, Germany, Italy and Japan. Finance chiefs and central bankers from those wealthy nations meet at 2:30 p.m. at the U.S. Treasury and will issue a closing communique at around 7 p.m.
The International Monetary Fund, which along with the World Bank holds its semi-annual meetings on the weekend, conceded in a report on 11 April that the global economy still faced risks from sources ranging from financial market volatility to inflation. But it said risks were lower than six months ago.
“The world economy is set for another good year in 2007,” IMF chief economist Simon Johnson said.Still, there are tensions, especially over huge imbalances between trade deficit nations like the United States and surplus economies like oil producers and export giant China, which is being pressed to let its currency rise in value to aid a correction.
U.S. lawmakers’ anger at China’s currency policy has kept pressure on the Bush administration to take a tough stance against Beijing. The United States said on Monday it was filing two trade actions against China at the World Trade Organization to try to stop piracy and counterfeiting of American goods.
China is not sending top-level ministers to participate in parts of the G7 talks, as they have done in the past, though U.S. officials note there are separate U.S.-China talks on economic issues set for late May.
Still, the issue of a potential flaring of protectionist sentiments -- even if it is not on the formal agenda -- is one that G7 finance leaders will have in mind when they discuss how to give stalled Doha Round free-trade talks a boost.
The official agenda includes talks on world economic conditions, capital markets, trade, aid to poorer nations and energy prices.
The G7 ministers will discuss concerns among some of them that lightly regulated hedge funds -- big pools of private capital that cater to wealthy individuals and institutions -- are a threat to stability.
But Britain and the United States, where most of the funds are based, have already struck positions in favor of letting market forces temper the funds’ riskier practices, effectively backing down a European effort led by Germany to consider stiffer regulatory and disclosure requirements on them.
Germany’s finance minister, Peer Steinbrueck, is skipping the G7 meeting in favor of a vacation in Africa. But German Deputy Finance Minister Thomas Mirow was quoted on Wednesday as saying a “voluntary agreement” among hedge funds might suffice to make their investment strategies clear to investors.
G7 deputies will meet on the sidelines of this weekend’s meetings with representatives of the hedge-fund industry, which is eager to thwart any potential regulatory drive.