BASEL, 7 May 2007 — The global economy, including Saudi Arabia’s, can withstand dollar weakness now better than in the past, Saudi Arabia’s deputy central bank governor said yesterday.

Muhammad Al-Jasser, deputy governor of the Saudi Arabian Monetary Agency, also told Reuters the US economy’s fundamentals remained in good shape despite a modest slowdown and that he did not expect a recession in the world’s biggest economy.

“Not only Saudi Arabia, but the rest of the global economy can withstand more than it could in the past the decline in the value of the dollar,” he said in an interview on the sidelines of a meeting of central bank officials at the Bank for International Settlements.

“Financial markets are playing a significant role now, capital inflows affect the value of the currencies and value of assets denominated in the dollar. The impact is more diffused and much more complex than the textbook case.”

Jasser also said exporters’ passing-on of exchange rate changes to consumers had weakened significantly.

The dollar hit a two-year low against a basket of currencies earlier this month and an all-time low versus the euro last month.

The US economy grew at a weaker-than-expected 1.3 percent annual rate in the first three months of this year, its weakest rate in four years, as it lost momentum because of mounting housing sector woes.

“The US economy might be slowing down a bit, but it’s still doing very well and fundamentals remain good ... (The US) slowdown is very small. We are not talking about recession or significant slowdown,” Jasser said.

“Whatever slowdown that may be happening in the US is being compensated for by more robust growth in Europe and Asia and the rest of the emerging markets, which are collectively doing very well.”

In contrast to the United States, the euro zone is enjoying its best growth since 2000 and China’s economy grew at a blistering 11.1 percent annual pace in the first quarter.

“Therefore, the impact should not be significant,” Jasser said.

Asked if he expected a US recession, he said: “No, I do no expect a recession, at least from what we know at this point.”

Strong global growth has boosted investor risk appetite, fanning demand for carry trades where investors borrow in low-yielding currencies like the yen to buy high-return assets.

Jasser warned against a one-way bet but said there was no significant concern about a sudden unwinding in carry trades.

“It’s always dangerous to have a one-way bet. Macroeconomists, FX observers are watching what may happen to the yen carry trade. From what I hear it’s not too significant and it is not concentrated in the hands of speculators,” he said.

“A lot of Japanese individuals are choosing to invest in other currencies.

Thus, it doesn’t raise a significant concern about a sudden unwinding of carry trades.”