Resilient global economy continues to grow at dynamic pace, Trichet says

The global economy is growing at a dynamic pace and may accelerate in 2006 as threats fade and companies step up investments, central bankers from major countries said yesterday.

The surge in oil prices has not restrained economic output, trade prospects are improving and central banks have kept a lid on inflation expectations, European Central Bank (ECB) president Jean-Claude Trichet said.

"The global economy proved very, very resilient in the eyes of governments and particularly resilient in the sharp run-up in energy prices," Mr Trichet said after a meeting of G10 central bankers from the world's largest developed and emerging nations.

"There is a general confirmation among colleagues that global growth is continuing at a pace which is dynamic, and we don't exclude that global growth could be a little bit higher in 2006 in comparison with 2005," he said.

Mr Trichet, who chairs the G10 session, even dropped trade protectionism from the risks facing the global economy. Trade ministers in December staved off a collapse in global trade talks with an interim agreement to continue working toward global liberalisation by the end of this year.

Another surge in oil prices from today's level around $64 (€53) a barrel remains a risk to the benign outlook, said International Monetary Fund (IMF) managing director Rodrigo Rato, who attended the central bankers' session.

Other dangers are the underpricing of risk premiums in debt markets and a sharp unwinding of global imbalances including the huge US current account deficit, Mr Trichet said. But overall, his assessment was more upbeat than in many years, a view shared by many economists.

"Global growth is solid and becoming broader based as the new year begins," said investment bank JP Morgan in a research report yesterday.

The central bankers did not discuss currencies, or China's plans to diversify its foreign exchange reserves, even though some financial market experts are concerned that if China slows its purchase of US treasuries, it could trigger a destabilising dollar rout.

They examined the US yield curve, however, where fears of a pending recession were raised when the yield on 10-year US government notes slipped for some days below two-year yields.- (Reuters)