Paris, Monday, September 25, 2000 Dark Clouds,Silver Lining?
By Alan Friedman International Herald Tribune
PRAGUE - If the world economy were a weather map, then a look at the sky would show it to be partly sunny, with a couple of large storm clouds overhead. At least that is the view of the central bankers and economists gathered here.
Larry Summers, the U.S. Treasury secretary and a man not normally given to metaphor, over the weekend described the world economy as a relatively blue sky. But he warned that high oil prices represented ''the largest cloud'' on the horizon.
European officials, picking up on the image, added that the weakness of Europe's single currency could be described as the other hovering cloud.
But many of the world's top bankers, economists and financial officials in attendance in Prague believe that the cloud cover could soon lift. The fears about the weak euro and high oil prices that have dominated the annual meetings of the International Monetary Fund and World Bank under way in Prague could fade over the next few months.
The Group of Seven wealthy nations, like the economists at the IMF, believe that prospects for continued expansion in much of the world economy have improved in recent months, with almost all parts of the world on track for good growth this year and next. The United States continues to enjoy low unemployment, low inflation and the prospect of slowing growth next year at a rate close to a respectable 3 percent.
The 11-nation euro zone in Europe is on track for growth at about the same level, perhaps even slightly higher. Japan is in recovery mode, and the emerging economies of East Asia that were hit by crisis three years ago are enjoying an amazingly rapid rebound, as is much of Latin America. Even Russia is experiencing healthy growth.
The twin threats of a weak euro and high oil prices are genuine, but action is being taken on both fronts.
The G-7 central banks are now committed to defending the euro, and while the currency could still experience serious turbulence over the next few weeks, ringing more alarm bells, financial officials in Prague believe that the recent and likely future intervention by central banks should eventually stabilize the currency.
Likewise, a prolonged period of high energy costs could cut global growth next year, but that means bringing it down from an expected 4.2 percent to perhaps 3.5 percent, still a very respectable rate of expansion.
John Lichtblau, a New York-based oil-industry expert, said he believed that the price of crude would settle down just below $30 by the start of next year, reducing collateral damage to the world economy.
Mr. Summers said that ''seeing oil prices fall would certainly maximize prospects for the global economy.''
George Soros, the financier, pointed out that ''there have been two destabilizing factors in recent weeks, the euro and oil. But action is being taken on both.'' He added, '' I think the world economy is otherwise in pretty good shape, and also pretty well managed right now.''
Robert Hormats, vice chairman of Goldman Sachs International, also was optimistic. ''Higher oil prices and currency instability are indeed both negative factors,'' he said. ''But the world economy is robust enough to withstand them and continue to grow at a relatively rapid rate.''