LONDON: The G-8 finance ministers, after their weekend meeting in St. Petersburg, warned that the ever widening U.S. trade deficit was `a global risk.' They stated that the world economy was now growing at a `healthy pace' but could be `derailed' by U.S. trade deficit or high-energy prices.

There is much speculation in the markets about the way the global economic and financial tide will turn in the coming weeks. The G-8 finance ministers met in St. Petersburg after a week of stock market decline, as industrial stocks plummeted to their lowest point during the year amid fears of inflation and rising interest rates. They are set to meet again in St. Petersburg after a month to review their strategy to contain inflation and boost economic growth in Europe to create more jobs. Over 20 million European workers are now unemployed or under-employed and supported by the welfare state's social security system, causing a huge drain on G-8 countries' economic resources. The G-8 ministers warned about `downside risks' from `volatile and high energy prices' and stated that `widening global imbalances' still remain.

Analysts are impressed but remain concerned over G-8 ministers' call for greater deployment of investment in search of new oil deposits. Another perception in the markets, albeit in minority, is that the oil prices will fall by fifty per cent from the current high level of $70 a barrel as industrialised countries develop and articulate alternative energy resources.

At their June 28-29 meeting, G-8 finance ministers may push up the interest rate to 5.25 per cent. With rising interest rates and falling stock markets, more fund managers see profit in current volatility. They are also buying into emerging market stocks, particularly in Brazil, although key Latin American stock indexes have gained 61 per cent in asset value in recent weeks — Brazilian and Mexican utility stocks are preferred. But there are key question marks on the future of stocks in the developed markets with high-energy prices, falling house prices in the U.S. and average western consumers increasingly crippled by high-energy prices, spending less on consumer goods. It is argued that all this may produce a global slump with the economic growth rate dropping from five per cent plus rate in the first quarter to a near recession level of three per cent by end the of 2007.

The Dow Jones index is displaying a modest recovery of 1.7 per cent but the index has fallen by 9.6 per cent since reaching a five-year high on May 9, then pushed lower by worries that rising interest rates may slow economic growth.

The debate is, which should the central banks jump — into the frying pan or the fire? The fiscal and economic scenario is obviously daunting, to say the least.

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