G20 warns of oil price threat to global economic stability

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The Independent Online

Rising oil prices represent a major threat to the world economy, the G20 group of rich and developing nations warned last night after its weekend summit in China.

At a meeting in Xianghe, near Beijing, the finance ministers and central bank governors from the G20 countries expressed concern about inflationary risks from high oil prices and the dangers from rising protectionist tendencies and economic imbalances such as the record US trade deficit.

A joint statement said: "We are concerned that long-lasting high and volatile oil prices could slow down growth and cause instability in the global economy."

Rodrigo Rato, the head of the International Monetary Fund who also attended the gathering, said he expected global growth this year to remain robust at 4.3 per cent, but warned that the world economy could take a bad hit because of oil and other problems.

"These imbalances pose serious risks to prosperity, because they are clearly unsustainable, and if they are corrected in a disorderly way, through an abrupt decline in the US dollar and rise in US interest rates, growth and prosperity all over the world will be threatened," he said.

The G20 statement said: "We are resolved to implement the necessary fiscal, monetary and exchange rate policies and accelerate structural adjustments to resolve these imbalances and risks."

However, behind the scenes, there was disagreement over the path of China's currency and trade issues. The US Treasury Secretary John Snow came to China demanding that it do more to let the market decide the value of the yuan. But the Chinese President Hu Jintao said a steady hand was important for world stability and the finance ministers of Britain, Japan and France all took a softer line outside the meeting, praising China for the currency reform it has undertaken so far.

Meanwhile, the European Central Bank President Jean-Claude Trichet said interest rates were "still appropriate" and observed that high oil prices had not yet pushed up wages (rising fuel costs usually lead to higher salary demands).