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Central bankers forecast above 2 pc global growth.

SHANGHAI, July 12 Kyodo

Central bankers from major industrialized countries and emerging market economies meeting Monday in Shanghai said the world economy is improving and likely to achieve a global output above 2% by the end of this year.

They also agreed their main policy challenge is to improve economic growth while maintaining financial stability.

To avoid creating new risk to the global system, external imbalances worldwide have to be resolved over time, they said.

The central bankers discussed the issues at their gathering in Shanghai, which was part of the governors' meeting of the Bank for International Settlements (BIS).

The bank policy-makers included those of the Group of 10 (G-10), which comprises 11 major developed economies, and of emerging markets in Asia, Mexico and Saudi Arabia.

Speaking after the discussions, Deutsche Bundesbank President Hans Tietmeyer said the central bankers concluded it was likely by the end of the year the global growth would be above 2%.

Tietmeyer, also chairman of the G-10, said the consensus forecast in June for world output was about 2.5%, an improvement from the 1.9% in the February forecast.

The growth prospect for the United States is now clearly above 3% while the forecast for Western Europe is 1.9%, he added.

"It seems to be the case that at least a slight recovery is on the way," Tietmeyer said.

Although the central bankers reportedly expressed concern over the sustainability of Japanese economic recovery, Tietmeyer said they agreed there was a chance for Japan to escape negative growth for this year and "even might be a little bit better."

The economic performance of the Asian region, including Australia and New Zealand, is also improving, though not very strong, Tietmeyer said.

To maintain economic growth, the central bankers reportedly identified their main task as continuing policy reforms.

Tietmeyer said Europe needs to carry out reforms in fiscal and structural policy areas so as to create new growth, particularly investment-based growth and an increase in job opportunities.

It is also important for Japan to carry on with financial reforms to create public confidence, while the emerging economies should also not slip in bank restructuring, the German central bank chief said.

"The better or more inflow of capital should not be misinterpreted as giving room for relaxation of reforms," Tietmeyer warned.

But to transform their banking systems to be more open and liberalized, emerging economies should do it step by step to secure financial stability, BIS President Urban Backstrom said at a separate press conference.

The central bankers also reportedly noted the latest hike in interest rates by the U.S. Federal Reserve had not drawn strong reaction in the global financial market.

But Tietmeyer said the credit risk spread between emerging economies and industrialized countries, especially the U.S., remains wide.

On inflation, Tietmeyer said discussions showed it is not an obvious problem for the time being for most parts of the world, but that "doesn't mean inflation is dead."

During its own gathering in Shanghai, the G-10 discussed a special report on securities lending transactions, market development and implications prepared by the Committee on Payment and Settlement of the central banks of the G-10 countries and the International Organization of Securities Commissions.

The report will soon be released to the public to provide a clearer understanding of securities lending arrangements and the risks involved, Tietmeyer said.

He also announced Bank of England Governor Edward George will succeed him as chairman of the G-10 from September.

The G-10 comprises the central banks of 11 industrialized economies -- Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, Britain and the U.S.
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Publication:Asian Economic News
Date:Jul 19, 1999
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