Russian Finance Minister Kudrin Says China Failing to Drive Global Growth
China is failing to lift the global economy because of its weak consumer demand and countries across the globe are reverting to pre-crisis models of growth, Russian Finance Minister Alexei Kudrin said.
China’s domestic demand “remains weak,” and the country may not be able to regain its role as the “locomotive of the world economy,” Kudrin said at a conference today in the Siberian city of Krasnoyarsk.
“Many countries are returning to pre-crisis models through sheer inertia, even though the world crisis has reduced global imbalances,” Kudrin said. The U.S. is continuing to run a current-account deficit after relying on consumer demand to spur growth, he said.
Group of 20 governments failed to agree on shrinking current-account shortfalls during a meeting in Seoul last November. Debt and deficits, as well as the size of foreign- exchange reserves, savings ratios and growth differentials, are among the indicators that French Finance Minister Christine Lagarde put up for discussion among G-20 ministers the next two days in Paris.
U.S. Current Account
The U.S. current-account deficit widened to $127.2 billion in the third quarter, reflecting an increase in imports, a Commerce Department report showed on Dec. 16. The shortfall, which is the broadest measure of international trade that includes income payments and government transfers, was the biggest in almost two years.
China, which overtook Japan as the world’s second-biggest economy last year, reported a smaller-than-forecast January trade surplus of about $6.5 billion, the smallest in nine months, as a rebounding economy and rising commodity costs helped drive a 51 percent gain in imports.
China is facing renewed pressure to push up the yuan after it allowed the currency to strengthen since a two-year dollar peg was scrapped on June 19. G-20 nations are likely to discuss the yuan’s value in Paris this week. U.S. lawmakers are reintroducing legislation targeting China and Brazil may discuss its concerns with President Barack Obama next month.
“More flexible exchange rates are needed,” Kudrin said today. “Currency wars are set off when that isn’t accomplished, and it’s something we may face.”
Central banks in countries including Japan, Brazil, and South Korea, have intervened in currency markets or put up capital control barriers in recent weeks to prevent their currencies from strengthening in a bid to boost exports.
Brazilian Finance Minister Guido Mantega warned of a global “currency war” last September as his country weighed a higher tax on capital inflows.
Higher energy prices are spurring capital inflows and currency appreciation in Russia, threatening to “reproduce pre- crisis trends,” Kudrin said.
The ruble, which has led gains among emerging-market currencies over the past three months, strengthened 0.1 percent today to 29.24 per dollar. Non-deliverable forwards, which provide a guide to expectations of currency movements, put the ruble at 29.4545 per dollar in three months.
Russian dollar bonds outperformed the debt of all 21 developing countries tracked by JPMorgan Chase & Co. this year, cutting yields to the lowest relative to the global average in 10 months yesterday.
Energy accounted for 71 percent of Russian exports to the Baltic states and countries outside the former Soviet Union last year, government data show. Urals crude, the country’s chief blend, has climbed more than 8 percent this year to as high as $101.11 a barrel.
The country needs “new sources of economic growth” to achieve GDP expansion “substantially” above 6 to 7 percent, Kudrin said. While the country may post a “stable” rate of 4 percent in the next few years, that won’t be sufficient to catch up with the world’s leading economies, he said.
Gross domestic product grew 4 percent in 2010 after shrinking 7.8 percent a year earlier. The government predicts GDP will rise 4.2 percent this year, or less than half the 10 percent target set by President Dmitry Medvedev to pull the country in line with China, Brazil and India.
Foreign direct investment in Russia slipped by about a third last year to between $12 billion and $14 billion, Kudrin said, citing preliminary estimates.
The Russian government targets balancing the budget by 2015, based on an average price for Urals crude of $75 a barrel in 2011 and $78 in 2012. The shortfall may fall below 3 percent of GDP this year, from 3.9 percent in 2010, according to Kudrin.
An Economy Ministry proposal to maintain a budget deficit of as much as 2 percent in 2015 to 2017 to support innovation “has no right to exist” and “needs to be substantially amended,” Kudrin said.
“In effect, it increases reliance on oil, and that amounts to an even bigger risk for the economy than there was prior to the crisis,” he said.
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