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Oil won't derail global growth, U.S. official says
By Rex Nutting, MarketWatch

WASHINGTON (MarketWatch) -- Global economic growth is so strong that higher oil prices won't derail the expansion, U.S. Treasury Undersecretary John Taylor said Thursday ahead of weekend meetings of the Group of Seven, International Monetary Fund and World Bank.

"We've got a good thing going," Taylor said of global growth.

"We think there's so much strength in the global expansion that [high oil prices] will not derail it," he said.

As for the United States, "this is an expansion which is very solid," he said, dismissing skeptics who see the U.S. economy beginning to slow.

On Wednesday, the IMF said in its annual world economic outlook report that the United States and other developed countries need to do more to rebalance global growth. In particular, the U.S. needs to take strong steps to balance its budget and increase national savings, the IMF said. See full story.

Taylor said the Bush administration's plans to cut the deficit in half were credible and based on conservative forecasts.

At the weekend meetings, Taylor promised "you'll see financial diplomacy at its best."

Taylor predicted movement, but no final agreements, on several issues, including a somewhat contentious debate about the terms of canceling much of the debt owed by the developing world.

Taylor said it's likely the G8 heads of state will make a final decision on the debt issue at their meeting in July in Scotland.

Top Chinese officials will not be attending the G7 meetings this weekend as guests as they did the last two gatherings, but that won't keep currency issues off the table in the context of the large U.S. current account deficit.

Taylor kept the pressure on the Chinese, arguing that China's economic and financial system is now technically ready for flexible rates.

He said the "growth deficit" in some G7 nations, notably Germany and Japan, will also be discussed at Saturday's G7 meeting. The United States has argued that structural reforms, not just good fiscal and monetary policies, are necessary ingredients for faster growth.

Earlier Thursday, outgoing World Bank President James Wolfensohn counseled critics to give his successor, Paul Wolfowitz, six months to prove himself. See full story.

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