War dents global growth targets

THE global economy should finally begin to recover in the second half of the year, the world's top finance ministers were told in Washington on Sunday.

Chancellor Gordon Brown and outgoing Bank of England governor Sir Edward George separately said they shared the assessment of the Organisation for Economic Co- operation and Development. Brown said: 'Sound fundamentals and policies should deliver stronger growth in the second half.'

But the ministers received further confirmation of the Iraq war's costs, as the OECD cut this year's global growth forecast from 2.2% to 1.9%. They were also warned about the danger of their own spiralling budget deficits.

The cautions came as the finance ministers of the G7 group of rich countries began post-war reconciliation at a meeting chaired by Brown. They agreed on cooperation in rebuilding Iraq's economy, including the need for a new United Nations Security Council resolution to end sanctions and unfreeze overseas assets.

They also agreed on roles for the International Monetary Fund and the World Bank. But they deferred the issue of Iraq's £80bn-plus debts, much of it owed to France and Germany.

The OECD explained that 'uncertainty has become more prevalent' as it cut this year's growth forecasts. It expects 'a delayed recovery, starting this year and gathering momentum in 2004'. It noted OECD government budgets have soared from balance to deficits totalling 3.5% of GDP in just two years. 'This striking turnaround is a cause for concern,' it says. 'There is now a pressing need to put public budgets on a medium-term consolidation course.'

For the past decade, Japan has brushed off repeated pleadings at international meetings to take more active steps to boost its economy. Now it is the eurozone's turn. International Monetary Fund managing director Horst Koehler and the OECD urged the European Central Bank to relax monetary policy.

But ECB president Wim Duisenberg dismissed talk of deflation and said lower interest rates would do little to resolve economic uncertainty.