Speaking before flying to Seoul for the meeting of the world's 20 top rich and emerging nations, Chancellor Angela Merkel called for leading powers to coordinate their so-called exit strategies and warned against creating new asset bubbles.

"There will of course be a discussion about exit strategies," Merkel told reporters.

"It is naturally desirable that the leading economic powers do not come up with too varied answers to the question as to when the exit strategy should begin," she added.

"This could be a thoroughly lively debate... all in all, a few tricky discussions, but an important summit," Merkel said.

Asked about the US Federal Reserve's policy of pumping 600 billion dollars into its fragile economy, Merkel said: "We are going to discuss this issue with the Americans in a spirit of partnership."

"Nobody has an interest in creating new bubbles. Rather, we must see to it that growth in the global economy this year is more sustainable and enduring that we had a few years ago," she said.

Critics argue that the Fed's "quantitative easing" stimulus amounts to an effective dollar devaluation, and has the potential to trigger a 1930s-style trade war if other countries respond in kind.

With this in mind, Merkel also pressed her fellow leaders to avoid any form of protectionism, amid criticism that certain countries, notably China and Japan, are keeping their currencies artificially low.

"The biggest danger for sustainable growth is currently coming from protectionism in its different forms," she said.

But she declined to criticise Beijing for its foreign exchange policy, saying: "I assume that China has a very strong interest in sending a positive signal from this summit.

"China also needs sustainable growth for its overall economic situation," added the chancellor.

earlier related report
US trade deficit eases but China tensions remain
Washington (AFP) Nov 10, 2010 - The US trade deficit edged off record levels in September but a huge gap with China spelled continued tensions between the two superpowers on the eve of a G20 summit.

The US Commerce Department reported exports nudged up as foreign imports nudged down, narrowly reducing a deficit which has become a major source of the world's escalating trade rows.

Leaders from the world's 20 leading economies will meet in South Korea from Thursday where trade-linked currency squabbles are set to dominate.

With much of the developed world -- including the United States -- still mired in slow growth and high unemployment, allegations are flying that fast-growing economies like China are pursuing unfair trade policies.

The US trade deficit edged down to 44 billion dollars in September, aided in part by a weaker dollar, but the gap with China makes up more than half of the total.

The 2.5 billion dollar fall from August was far greater than that expected by most economists.

Although the trade shortfall with China fell 2.2 billion dollars in the month, it still stood at a whopping 27.8 billion dollars, near record highs.

The United States has long blamed China's currency policy for that gap, accusing Beijing of keeping the yuan undervalued to gain an unfair advantage for its exports.

Washington is pressing G20 members to adopt a pact to curtail imbalances between trade surplus and deficit nations, with China firmly in its sights.

China has hit back, with President Hu Jintao calling on other countries to "face their own problems" rather than casting blame for the chasm between nations.

China has also joined widespread and stinging criticism of the Federal Reserve's move last week to pump an extra 600 billion dollars into the fragile US economy, a move which has caused the dollar to plummet and turned allegations of currency manipulation on the US.

According to Nigel Gault of IHS Global Insight the weakening dollar will continue to help the US increase exports beyond the levels seen in the September data.

"We do expect export growth to accelerate now, helped by the combination of still-robust emerging-market growth with the weaker dollar."

Yet despite the likely tensions that would cause, for the United States the outlook is much improved from last month and the latest figures raise hopes for faster US growth in the third and forth quarters than once thought.

The value of trade deficits subtract directly from gross domestic product as cash leaves the country.

"This is worth about 0.2 percent in terms of revision to the headline (third quarter) GDP number," said Ian Shepherdson of High Frequency Economics.

The August trade deficit had been the second biggest since October 2008 when the global financial crisis accelerated, and confirmed a trend of widening gaps that began in mid-June 2009.

But some analysts cautioned that a rosier picture for US exports could be misleading.

"The rise in exports appeared to be rather limited and mostly attributable to a very volatile civilian aircraft," said Inna Mufteeva a US economist with Natixis.

Separate data released Wednesday also showed signs that import prices are edging up, adding to concerns about long-term inflation.

According to analysts at Barclays Capital the almost one percent rise in import prices in October, reflecting a weakening dollar and rising prices for cotton, sugar, coffee and a variety of other imports.

"We expect further increases in core import prices in the coming months, reflecting the effects of a weaker dollar and higher commodity prices," said Barclay's Peter Newland.

"While pass-through to consumer prices is unlikely to be significant in the near term, this supports our view that disinflationary pressures are easing."

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