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Royal Bank of Scotland senior economist Neil Parker
"We need to see some sorts of sign that the US economy is recovering"
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Monday, 9 July, 2001, 12:02 GMT 13:02 UK
US weakness 'to continue'
G7 finance ministers in Rome
Finance ministers gave an optimistic view of the world economy
Business economists in the US fear that the slow growth of its economy will continue into the second half of the year, according to a new survey.

The National Association of Business Economists (NABE) said that most of its members expected US economic growth to remain at about 1%-2% for the rest of year - about the same pace as in the first quarter, and a sharp slowdown from the 5% growth rate in the previous year.

The group said that capital spending by companies on plant and equipment declined in the second quarter of 2001 to a ten-year low.

The news comes as finance ministers from the Group of Seven (G7) leading industrial countries ended a meeting in Rome with an upbeat assessment of the prospects for recovery.

And recent news from Japan, which is suffering from a combination of recession and deflation, was a bit more positive, with machinery orders rising more than expected in June.

Mixed assessment by G7

American Treasury Secretary Paul O'Neill told the gathering that he expected the US economy to return to 3% growth in 2002- substantially more than that estimated by international economic organisations such as the IMF.

German Finance Minister Hans Michael was also upbeat, telling journalists there were no grounds for pessimism. Growth was slower, he said, but it was growth nonetheless.

However, the German government has recently revised downwards its own estimates of how fast the economy will grow.

High and volatile oil and energy prices are a cause for concern

G7 working paper
In contrast, UK Chancellor Gordon Brown told the BBC shortly before the meeting that the slowdown was far more severe than had been expected a few months ago.

Mr Brown joined calls from the United States and urged the European Central Bank to cut rates to help boost the European economy.

At the meeting, Mr O'Neill praised Russia's efforts at fighting money laundering - a major G7 concern.

The finance ministers were meeting ahead of the Genoa summit of world leaders in two weeks' time, where President Bush, Prime Minister Tony Blair and the leaders of Germany, Italy, France, Canada and Japan will be joined by the Russian President Vladimir Putin to form the G8.

Worrying developments

The Genoa summit will open amid widespread concern over the global situation, given the apparent weakness of the world's three largest economies - the US, Japan and Germany.

It is unusual - and worrying for the rest of the world - that all three should be suffering at the same time.

Since the seven finance ministers last met in Washington in April, the outlook for the euro area, including Germany, seems to have deteriorated.

Also on the agenda at the meeting was a discussion of the globalisation of the international economy and measures to prevent major financial crises and how to resolve them if they do occur.

Signs of weakness are appearing in emerging country currency markets, following the failure of IMF bail-outs to resolve the economic problems in Turkey and Argentina.

Anti-globalisation campaign

The Genoa summit is likely to be the target of thousands of protesters opposed to the process.

Campaign groups have calling on the G7 to agree to write off the foreign debt of the poorest developing countries.

Jamie Drummond of Drop the Debt said that the proposed $1bn health trust fund is equivalent to the sum sub-Saharan Africa repays in debt each year.

"The hopes raised by the Millennium and early promise of debt relief have been left in Roman ruins," he added.

Although they say some G7 countries are sympathetic to the idea of doing more than they have already, they do not expect any further concessions to be agreed in Genoa.

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