G8: Volatile Oil Threatens Growth

LONDON, July 5 (Reuters) - Leaders of the Group of Eight industrialized nations will say this week that oil price volatility is a danger to already-slowing world economic growth, according to a draft text of their final economic statement.

In the text, dated June 28, the G8 leaders also urge oil producers and companies to ensure enough investment in future oil supplies and refining capacity.

Oil prices hit an all-time high of $60.95 last week. The text suggested the G8 was concerned more by the potential drag on growth of high oil prices than their inflationary impact.

"We agreed that secure, reliable and affordable energy sources are fundamental to economic stability and development," said the text, a copy of which was shown to Reuters.

The G8 leaders, who will meet from July 6-8 in Scotland, said persistent global imbalances and high oil prices would pose challenges to the world economy, which would remain robust in 2005 but grow at a slower rate than in 2004.

The world economy grew 5.1 percent last year, its fastest rate in three decades, but is predicted to slow to closer to 4 percent this year, according to the International Monetary Fund.

G8  Statement on Economy

The following is the full text of a draft final statement on the world economy by the Group of Eight leading industrialized nations.  The draft, dated June 28, was shown to Reuters.

The health of the global economy is a key concern to each of the members of the G8 and to the world as a whole. Global growth in 2004 was strong, underpinned by supportive macroeconomic policies and supported by robust growth in trade along with increasing regional and global integration. Growth is expected to be robust, although at a more moderate pace, in 2005.

But challenges remain, especially persistent global imbalances and high and volatile oil prices. We acknowledge our shared responsibility to sustain and maintain balanced growth within our own economies. We agree that we must all play our part through vigorous action to support a smooth adjustment to more balanced growth. We are committed to concrete and credible actions, including: continued fiscal consolidation to increase national savings in the United States; further structural reforms in Europe to boost growth and domestic demand, and in Russia; and further structural reforms, including fiscal consolidation, in Japan. We also emphasize the importance of reforms to increase flexibility, raise productivity and enhance job creation.

We discussed the risks that sustained high energy prices pose for global economic growth. Building on the productive discussions by our Finance Ministers, we reaffirmed the need for concrete actions to reduce market volatility through more transparent and timely data, and welcomed progress towards a global framework for reporting oil reserves, and look forward to further analysis of the workings of the oil market. On investment, we urge oil producing countries and companies and consumers to recognize their common interest in ensuring investment in sufficient future supplies of oil and refining capacity, and call for the removal of barriers to investment throughout the supply chain. We ask our Finance Ministers to continue to monitor these issues closely.

To help developing countries adversely affected by the impact of higher oil prices, we encourage the IMF to develop financial facilities to respond to these and other shocks. We highlight the role of the Extractive Industries Transparency Initiative in increasing financial transparency and improving the use to which oil revenues are put. We agreed that secure, reliable and affordable energy sources are fundamental to economic stability and development, and recognized the important role that energy efficiency, technology and innovation can play. And we have separately published a Plan of Action on these issues in addressing climate change.