US imbalances 'threaten economy'

Oil and the threat of bird flu are other risks, Rodrigo de Rato said

Global trade imbalances are one of the biggest threats to the world economy, the International Monetary Fund's Rodrigo de Rato has warned.

The reliance on US consumers to support other economies was unsustainable in the long term and had to be addressed, the IMF head said.

Mr de Rato's speech came amid further market jitters as fears of higher US interest rates hit investor confidence.

High, volatile oil prices and bird flu were other key threats, he added.

Risk

The US balance of payments was the most obvious example of imbalance, and actions to bring about a gradual reduction in that deficit was needed, Mr de Rato said.

"The risk is that if nothing is done, imbalances will not be reduced gradually but suddenly and in a disruptive way."

An IMF co-ordinated "multilateral consultation" between countries in the eurozone, the US, Japan, Saudi Arabia and China has been planned to discuss the issue.

Speaking in the Australian capital, Canberra, Mr de Rato said that global economic growth would be close to 5% in 2006, with a slight correction in 2007.

Oil issues

He added that central banks were trying to cool inflationary pressure without stopping economic growth.

"In the face of rising inflationary expectations and concerns that higher interest rates may choke off growth, the balancing act that central banks around the world must undertake has become more difficult," he said.

And he repeated a call for governments to do more to promote free and transparent trade in oil.

Referring to the standoff over Iran's nuclear programme, violence in Nigeria, the insurgency in Iraq and economic nationalism in Latin America, he said that supply constraints and geopolitical issues were playing as much of a part in keeping oil prices volatile as supply and demand.