Saturday January 27, 5:25 am Eastern Time

Top Economic Officials See Slower
World Growth

By David Crossland

DAVOS, Switzerland (Reuters) - Top finance officials on
Saturday forecast slower world economic growth this year and expressed concern about the outlook for Japan, which has less immediate scope than the United States to spur output.

Stanley Fischer, first deputy managing director of the International Monetary Fund, said the IMF could cut its forecast for global growth in 2001 to around 3.5 percent from the 4.2 percent expansion it had foreseen last September.

However, he told the annual meeting of the World Economic Forum business summit that the world economy was still far from shrinking, predicting a pickup in U.S. growth in the second half with full-year growth likely to be around 2.5 percent.

``We are still a long way from a global recession,'' he said, adding that growth was still above rates seen in the early 1980s.

This year's annual meeting of the World Economic Forum has been overshadowed by fear of a global recession as U.S. growth has screeched to a halt.

Japanese output may have declined slightly in the fourth quarter of 2000, Fischer said, adding that by contrast the U.S. was in the fortunate position of having the option to continue lowering interest rates to spur its growth.

``U.S. real interest rates are not unusually low at present by historical standards, so I don't fear what you fear,'' he told a questioner who asked about the inflationary impact of more interest rate cuts.

``Remember they have got another 400, 500 basis points to go if absolutely necessary -- not that I think that will be necessary. I don't see that as a major danger. This has been a reasonably balanced expansion by historical standards,'' he said.

Fischer welcomed the Federal Reserve's 50 basis point interest rate cut early this January amid signs of a slowdown.

Former U.S. Treasury Secretary Lawrence Summers said Japan was unlikely to achieve the higher levels of sustainable growth it was capable of unless it adjusted its mix of monetary and fiscal policy.

Even restructuring of Japan's corporate sector, although helpful, would not be enough on its own, Summer told the Forum.

``Without a change in monetary and financial conditions that produce the impetus and the fuel for nominal GNP growth, it is not likely that the generation of positive supply shocks through microeconomic efficiencies will have a material impact on the underlying path of demand growth'' in Japan, he said.

``But I think it is fair to say there has been a certain amount of reluctance, at least at some points in Japan, in recognizing that reality.''

Japanese Vice Finance Minister for International Affairs Haruhiko Kuroda said he was confident the yen will not decline sharply and that Japanese government bonds would not crash.

Kuroda said the government's forecasts last December of gross domestic product growth of 1.2 percent for the fiscal year to end-March, and 1.7 percent for the following fiscal year, were ``on the conservative side.''

``I am confident that there will not be a crisis such as a crash of JGBs (Japanese government bonds) or a sharp decline of the yen,'' Kuroda said.

He said the corporate sector was doing ``fairly well'' with corporate profits set to rise 15 percent in the fiscal year to end-March 2001 and business fixed investment also buoyant.

But household spending remained flat , Kuroda said.

Kuroda also said that fiscal consolidation would be one of the main priorities of the Japanese government and agreed with Summer's assessment of the Japanese economy.

``The Japanese economy is improving but rather slowly, modestly, with some quarterly fluctuations,'' he said.

German Finance Minster Hans Eichel said Europe would be able to support global economic growth by growing around three percent in 2001.

Eichel said the world economy now faced greater risks than a year ago but that if oil prices stabilized at levels seen in recent weeks it would be a ``big plus'' for the world economy.

``I'm sure OPEC is aware of its responsibilities,'' Eichel said.

``Europe with economic growth of about three percent in 2001 will have a favorable effect on the world economy.''

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