IMF sees 2010 growth; G8 frets over risks

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(Agencies)
Updated: 2009-07-09 11:09

WASHINGTON: The fragile recovery from the worst global recession since World War Two will slowly pick up pace into next year, the International Monetary Fund said on Wednesday, but world leaders agreed stimulus spending must remain in place until the economic turnaround is secure.

Fears that high unemployment and slow consumer spending could strangle the nascent recovery pushed Wall Street lower for much of the day before US stocks ended little changed.

IMF sees 2010 growth; G8 frets over risks

International Monetary Fund (IMF) Economic Counsellor and Director of the Research Department Olivier Blanchard (R) and Counsellor and Director of the Monetary and Capital Market Directory Jose Vinals hold a news conference on the release of IMF's World Economic Outlook and Global Financial Stability Report updates at the IMF Headquarters in Washington July 8, 2009. [Agencies]

The quarterly earnings season got underway after the US market close with Alcoa Inc posting a smaller loss than analysts had expected and its shares rose.

European shares posted losses, led by financials, oil producers and automakers.

In a sign the economy may not be out of the woods, oil fell to under $61 a barrel from last month's peak of $70, and OPEC said world demand for its oil may take years to recover.

While the IMF's latest World Economic Outlook said the global economy is likely to decline 1.4 percent, slightly steeper than the 1.3 percent contraction it saw in April, it foresaw a stronger recovery next year. Economic growth could hit 2.5 percent in 2010, a more optimistic figure than the 1.9 percent the IMF reported in April.

Rounds of interest rate cuts and an estimated $5 trillion of dollars in public funds have helped to prevent the deepest global recession in decades from turning into a depression.

However, doubts that consumers and private businesses will be ready to ramp up spending prompted warnings from the IMF and others that governments would risk killing the recovery if they removed the life-line too quickly.

Leaders of the Group of Eight (G8) industrial nations, meeting in L'Aquila, Italy, essentially agreed, saying the recovery is not yet assured and that it is too soon to unwind economic growth packages. "Significant risks still remain to economic and financial stability," according to a draft document by the G8 - United States, Germany, Japan, France, Britain, Italy, Canada and Russia.

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The expectation that the recession is bottoming out in Europe's biggest economy received a boost with data showing German industrial output had bounced back strongly in May, up 3.7 percent, beating analysts' forecasts for a 0.5 percent gain.

"It is far too early to declare the return of Germany's growth engine," said Carsten Brzeski, an economist at ING Financial Markets. "The last two days were good news for the future stabilization of the German economy. For a sustainable recovery, however, much more of the same will be needed."

Although US unemployment stands at 9.5 percent, White House budget official Robert Nabors told lawmakers that orders for durable goods were turning upward. That showed the stimulus was having a positive impact, he said, and in the near future the country would see "genuine economic expansion and crucial job creation."

The Obama administration is not talking of a second stimulus package, Nabors said, an idea brought up by an outside economic adviser on Tuesday, the focus is on the $787 billion stimulus program already in place.

Asked about a second stimulus plan, White House spokesman Robert Gibbs told reporters Obama "won't hesitate" to take the steps necessary to help the economy.

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