U.S. Treasury Secretary Henry Paulson said in Tokyo that the global economy faces downside risks from the rout of capital markets that is serious and persisting but insisted he was convinced the US economy would continue to grow in 2008. At no time did he use the feared word recession.
"It will take time to work through the current financial turmoil" Paulson said in a statement after the weekend meeting in Tokyo of finance ministers and central bankers from Group of Seven nations. "As the financial markets recover from this period of stress, as of course they will, we should expect continued volatility as risk is re-priced". Meeting the press following the meeting Paulson said he was confident in the "long term health of the US economy" in spite of some corrections in the housing sector, high oil prices. He added that the 160 billion US dollar stimulus package approved by the White House would represent "a much needed thrust". G-7 policy makers ended their meeting by noting that the U.S. economy may slow and hurt world growth, without proposing measures to counter the threat. The countries differ on how to address a global economic slowdown, with Japan and Canada rejecting suggestions to use fiscal policy. "Today's meeting gave us the opportunity to discuss policy responses to these downside risks as well as the need to craft effective policy and regulatory responses that institute sounder frameworks better able to withstand risks and stresses", Paulson said, without specifying measures. The US Treasury Secretary said he didn't urge his G-7 colleagues to use fiscal policy to boost domestic demand in the way the U.S. has. "Every country has different economic situations, and every country has to focus on their own economic situation", Paulson said. He did say that both China and Japan should rely less on exports for growth "and more on domestic demand". Paulson said that one of the lessons from the current credit crunch and risk re-pricing was the speed at which credit problems have spread to other parts of the world demonstrating "the increasing need for frequent communication and close coordination during times of stress". The G7 made up of United States, Canada, United Kingdom, Japan, Germany, France and Italy discussed rising oil prices, and called on the Organization of Petroleum Exporting Countries to boost production, as well as the need to remain open to foreign investment, Paulson said. Paulson said the international economy would be "significantly enhanced" by lowering tariffs and trade barriers around the world. G-7 officials also discussed the role of sovereign wealth funds indicating that policy issues surrounding them must be "measured" while "remaining vigilant against protectionist sentiment". Sovereign wealth funds may be worth as much as 12 trillion US dollars within the next five years, up from around 3 trillion now, International Monetary Fund Managing Director Dominique Strauss- Kahn told reporters in Tokyo. Regarding currencies G7 ministers said that "excessive volatility and disorderly movements of exchange rates are not desirable for economic growth". Ministers added they support China's decision to increase the Yuan flexibility, "but given the surging surplus of its current account and domestic inflation, we encourage an appreciation of the exchange rate".