- The Washington Times - Sunday, September 18, 2005

PARIS (Agence France-Presse) — The world’s leading economies should avoid using tax cuts to protect consumers from the impact of high oil prices, says the head of the International Energy Agency.

“It is key to avoid sheltering consumers from market signals,” Claude Mandil said at a press conference Thursday in response to a question about French government pressure on oil companies to lower their prices.

“We strongly recommend to our member countries, and to other countries, to refrain from changing the level of the tax in order to change the price of oil for the end user,” he said.

As the price of crude oil soared to record highs late last month, calls increased for Western governments to decrease taxes on petroleum products that often far exceeded the basic prices themselves.

The IEA executive director said he understood that governments might need to return some eventual windfall gas-tax revenues back to those hit hardest by high prices.

Meanwhile, the German daily newspaper Handelsblatt said in Frankfurt last week that the International Monetary Fund’s (IMF) next World Economic Outlook report will cut its 2006 growth forecast for the world economy by 0.1 percentage point to 4.3 percent.

Handelsblatt said that in the IMF report, due to be released Wednesday, the fund would say that Hurricane Katrina itself would have a negligible impact on the United States’ economy, but that the IMF thinks there is a risk that the impact could trigger a series of “second-round effects.”

The newspaper said that as a result of higher gasoline and heating-oil prices, demand by U.S. consumers could fall, which could negatively affect exporting countries such as Germany.

If prices continue to rise because of tight supply in the energy market, the U.S. Federal Reserve also might continue its policy of gradually increasing interest rates, a move the IMF thinks could reduce U.S. domestic consumption.

Separately, Financial Times Deutschland, citing a draft copy of the World Economic Outlook, said the IMF was cutting its forecast for Germany’s 2005 and 2006 economic growth by 0.2 percentage point to 0.8 percent and by 0.1 point to 1.2 percent, respectively.

The main reason for the downward revision is high oil prices, the newspaper said.

But the draft report viewed the German economy to be so stable that it did not advocate a cut in the European Central Bank’s (ECB) interest rates. The report said the ECB’s monetary policy is considered “appropriate.”

The IMF will say that the U.S. economy is expected to grow by 3.5 percent this year and by 3.3 percent next year, while Japanese economic growth would be 2.0 percent for both years, the newspaper said.

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