Analysis; Global Economy Issues Up at G-7 Meet

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Byline: ANDREW MCCATHIE Deutsche Presse Agentur

BERLIN - Key representatives of the world's financial superpowers are gathering Friday in the German city of Essen for a two-day meeting at the start of what already is shaping up to be an uncertain year for the global economy.

But while an agenda for the two-day meeting of Group of Seven finance ministers and central bank chiefs includes tackling Africa's problems and the risk posed by hedge funds, the markets' focus will be on other issues that could be raised in Essen, notably the currency pressures emerging in Asia.

Indeed, this week's meeting of finance ministers and their central bankers from the world's rich G-7 nations -- the US, Canada, Germany, Britain, Japan, France and Italy -- is likely to be held against the backdrop of US-European tensions over the weakness of the yen.

"For the markets the issue (of the meeting) will be whether the yen is mentioned in the final communique," said Rainer Guntermann, senior economist with the investment house Dresdner Kleinwort.

The euro's recent steady gain against the yen might have set alarm bells ringing in the eurozone about the impact of the strong euro on European international economic competitiveness.

But at present, the prospects of the Essen meeting reaching a consensus on action to boost the yen appears unlikely with Washington and Canada resisting moves by G-7 eurozone members -- Germany, Italy and France -- to push the Japanese currency to the centre stage of the talks in the city's historic Villa Huegel.

Rather than a reference to the yen, most analysts believe that the Essen communique will only include a general expression of the G-7 meeting's worries about so-called economic imbalances in Asia.

However, a sense of unease about the a loss of competitiveness in Europe and the US in the wake of China's growing economic might has opened the way for the G-7 to be more forthcoming on the need for Beijing to take additional steps to address the weakness of its national currency, the yuan, analysts say.

But with economic forecasters divided on the outlook for the world economy and currency markets over the coming 12 months, both money markets and economists are likely to want hear from the Essen meeting how the ministers and monetary officials they are sizing the prospects for global growth.

And more specially, the extent of the risks posed to the international economy by oil prices, global protection and the ongoing threat of instability in the Middle East, in particular following reports that the US was weighing up a military strike against Iran. …