THE WORLD'S richest nations yesterday shrugged off fears of a global recession, predicting that the world economy would grow at 3 to 4 per cent this year.
Speaking at the end of the G8's riot-torn summit in Genoa, the German Chancellor Gerhard Schroder said such a rate of growth was "not bad at all", adding that there was no reason to be worried about a recession.
Mr Schroder also said that President George W Bush had told him there were "positive signs" for the American economy in the second half of the year, helping allay fears that a US recession could prompt a wider global downturn.
On the UK front, however, there was a warning yesterday from a respected forecasting group that the Bank of England must intervene on the currency markets to bring down the value of the pound to prevent a recession.
The Ernst & Young ITEM Club, which uses the same economic model as the Treasury, said the economy would grow just 1.8 per cent this year, its worst performance for nine years. Last year it grew by 3.1 per cent. Professor Peter Spencer of Birkbeck College, the club's chief economic adviser, said the weakness of demand had exposed the long-term harmful impact of the pound. "Manufacturing is in recession and this rot will spread if it is not stopped soon," he said.
In its quarterly review, the ITEM Club said it had decided to break with its tradition of not giving policy advice because of the severity of the outlook. The ITEM Club said the UK would be squeezed between the global slowdown in demand and the impact of the strong pound on exporters. It said the Bank, preferably working with the European Central Bank and the US Federal Reserve, should intervene to sell sterling and buy euros.
"Such a move would bring down the value of the pound and dig Britain out of an economic hole allowing growth to resume," said Professor Spencer.
He said dismissed claims that intervention was useless in a world of mobile capital markets, saying "even a modest effect would be worthwhile in the present situation". …