Oil prices, perkier Europe lift global economy hopes

Participants gather during lunch time at the World Economic Forum in Davos, Switzerland, Saturday, Jan. 24, 2015. The world's financial and political forum at the Swiss ski resort will end today. (AP Photo/Michel Euler)
Participants gather during lunch time at the World Economic Forum in Davos, Switzerland, Saturday, Jan. 24, 2015. The world's financial and political forum at the Swiss ski resort will end today. (AP Photo/Michel Euler)

DAVOS, Switzerland -- The global economic outlook got brighter after last week's big stimulus from the European Central Bank, leading policymakers from around the world said Saturday.

In a panel at the World Economic Forum in Davos, they said a perkier Europe, coupled with a prolonged period of low oil prices, could help shore up the global economy after a period of underperformance that has prompted many forecasters to reduce their growth predictions.

"Lower oil prices and the big decision by ECB could further improve world economic outlook," said Haruhiko Kuroda, governor of the Bank of Japan.

The European Central Bank's planned $1.2 trillion stimulus has been one of the main talking points at Davos and has helped counter some of the pessimism that has enveloped the global economy in the past few weeks. Stock markets around the world have surged amid hopes that the European Central Bank move could help boost the ailing economy of the 19-country eurozone.

However, Benoit Coeure, an executive board member at the European Central Bank, insisted that on its own, it won't be enough. He said governments across the region have to enact a raft of structural changes to their economies, such as making their labor markets more flexible and encouraging businesses to invest.

Coeure hoped the stimulus will give governments the space and encouragement to proceed with those measures.

"In the case of Europe, being patient is just a risk that we don't want to take," he said.

Some in Europe, particularly in Germany, are worried that the European Central Bank's bond-buying program may ease the pressure on governments to do more to change their economies.

In Germany, there's also concern that the stimulus is debasing the euro currency -- the prospect of more euros in circulation can weigh on the currency. The euro has fallen sharply since Thursday's announcement and is trading at 11-year lows around the $1.12 mark.

That's potentially good news for eurozone exporters because it makes their wares cheaper in international markets. A lower euro can also boost inflation as imports get pricier. The primary motivation behind the stimulus is to get inflation in the eurozone back toward the target of just below 2 percent. Currently prices are falling modestly.

Coeure insisted that the lower euro wasn't a primary motivation of the European Central Bank, stressing that the European Central Bank doesn't have an exchange rate target.

The euro's fall, he said, "was part of the channel" by which the stimulus works but "not the main consideration."

Mark Carney, governor of the Bank of England, also welcomed the European Central Bank's stimulus and said low oil prices may prevail for longer than many people think.

Carney did issue one note of caution, warning that the current low interest rates around the world, and the stimulus programs in Europe and Japan could prompt "excessive risk-taking." However, he said a better international supervisory framework means the world economy is more able to deal with that than it was before the global financial crisis in 2008.

Also Saturday, a Ukraine government official said their country will focus on fixing its problem of corruption as it tries to persuade its international rescue creditors to give it more loans.

Dmytro Shymkiv, deputy head of the presidential administration, asked for patience.

The economy and public finances of Ukraine have been drained by uncertainty over the country's future amid a war in its eastern region. The country got bailout loans from the International Monetary Fund, European Union and U.S. last year. But with no end in sight to its economic problems, it is asking for more.

The International Monetary Fund and EU have said is impossible if Ukraine does not step up its efforts to overhaul its economy.

The government will also try to make the judicial system more open, streamline the civil service and overhaul law enforcement, he said on the sidelines of the forum in Davos.

In a separate development that could boost global growth, 21 members of the World Trade Organization backed efforts to conclude the so-called Doha Round negotiations, according to Swiss Economics Minister Johann Schneider-Ammann.

Schneider-Ammann, who headed Saturday's meeting on the sidelines of the Forum, said the trade ministers made a commitment to complete the round, mainly in the unresolved areas of agriculture, industrial products and services.

The next major World Trade Organization ministerial conference is set for December in Nairobi, Kenya.

Last year, the World Trade Organization pulled off a deal to reduce customs red tape that proponents say could boost global commerce by $1 trillion annually. That deal, aimed at lowering the time and costs for goods to cross borders, was the first multilateral trade agreement in the organization's 20-year history -- but it was still just a small part of the overall Doha Round.

Information for this article was contributed by John Heilprin and Carlo Piovano of The Associated Press.

A Section on 01/25/2015

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