MercoPress. South Atlantic News Agency

Oil prices and US federal budget condition world growth.

The International Monetary Fund has lowered its world's 2005 growth forecast from 4,3% to above 4%, because of soaring oil prices and the situation with the United States budget deficit.

"We're lowering prospects, but we don't see growth dipping below 4%", said IMF Managing Director Rodrigo de Rato during last weekend's G-20 Finance ministers and Central Bank chairmen meeting in Berlin, reports Frankfurter Allgemeine Zeitung.

G-20 is made up of the seven richest world economies, Germany, US, Canada, UK, Italy, Japan, France (G-7) plus others such as Russia and emerging economies, Brazil, China, India, Mexico and even Argentina, which did not turn up to any of the Berlin meetings.

According to the German newspaper Mr. Rato pointed out that several countries in Europe are growing rather modestly, below 2%, in spite of the world's favourable conditions.

To sustain world expansion several of these countries, particularly Germany must strengthen the flexibility of its labour market, increase export competitiveness and reform public services, said Mr. Rato.

However Germany's Deputy Finance Minister Caio Koch-Weser underlined that besides oil prices, "the US budget deficit" is of great concern to the IMF and the "G-20 meeting sent a clear message" to President Bush's administration.

During the Berlin meeting Germany was particularly insistent that the US reduce its federal budget deficit which is weakening the US dollar and harming European exports.

The Euro last week broke the 1,30 US dollar benchmark, and financial analysts estimate the appreciation tendency for the EU currency will continue.

The feeling during the Berlin meeting was that the US was reluctant to address the weak dollar issue.

Following the meeting US Treasury Secretary John Snow reiterated the Bush administration's determination to cut the federal budget to 3% of GDP this year, "to prevent world imbalances" and to reduce it by half in 2009. "We have a strong dollar policy", insisted Mr. Snow.

In its final communiqué G-20 anticipates a favourable evolution of the world economy next year and highlights that "many countries have introduced structural reforms to promote sustained growth and financial stability".

Nevertheless the risks of slower growth have increased because of "oil prices volatility, persistent external imbalances and geopolitical concerns".

During the third quarter of 2004 economic growth was slower in the Euro zone and Japan with expansion reaching a modest 0,3% compared to a year ago; in the US the economy expanded 3,7% in the third quarter, but was below expectations.