World awaits recovery as G8 finance chiefs meet

By AFP

July 15, 2010 Updated Jun 14, 2009 at 9:41 PM CDT

Finance ministers from the G8 leading world powers are set to meet on Friday for talks in Italy as populations hit by the worst economic crisis in decades wait for firm evidence of an upcoming recovery.

Signs of an economic recovery have mounted in recent weeks but so have worries about the rising amount of debt incurred by governments to fight the crisis and their commitment to cut spending once growth restarts.

New data out on Thursday showed a rise in US retail sales and lower US unemployment claims, as well as rising global demand for energy.

But the World Bank forecast the global economy will shrink 3.0 percent this year, far worse than their previous estimate of a 1.75-percent contraction.

"Financial markets seem to have broken the fall over past months but there are clear fragilities, and risks remain," World Bank president Robert Zoellick said in a conference call with reporters.

"The developed economies seem to be contracting at a slower pace but the effects of the global economic downturn are rippling through the world and still very much hurting developing countries," he said.

The two-day meeting in Lecce in southern Italy could also see rifts on whether Europe should go for US-style "stress tests" to check the stability of its banks and on how far new rules on global finance should go.

Germany has argued that such tests on individual European banks could undermine fledgling economic confidence, while Britain has opposed stricter monitoring of financial markets proposed by the European Commission.

US Treasury Secretary Timothy Geithner has said he will urge fellow finance chiefs at the G8 meeting to stay the course on economic stimulus spending and financial reforms despite signs the global recession is easing.

"I think it is fair to say the force of the global storm is receding a bit," Geithner told reporters this week ahead of the talks.

"I think fundamentally those signs of improvement... are the result of policy actions we have put in place here in the US and around the world."

"Of course we want to see those actions sustained," he added.

Despite hopes for a recovery, financial markets have been getting increasingly jittery about how governments plan to scale back massive debts and spending once economic growth gets underway -- so-called "exit strategies".

There could also be more fallout at the meeting from scathing criticism issued by German Chancellor Angela Merkel this month against Britain and the United States for their massive cash injections to boost the economy.

The Lecce talks will start with a working dinner at 1700 GMT on Friday with ministers from all the Group of Eight (G8) countries -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- set to attend.

The talks are to finish at 1300 GMT on Saturday with a joint declaration.

To submit a comment on this article, your email address is required. We respect your privacy and your email will not be visible to others nor will it be added to any email lists.