Top IMF and World Bank officials gathered for semi-annual meetings yesterday and today in the shadow of the worst global slump since the 1930s, but with perhaps the first signs of recovery peeping through.
The IMF forecast earlier this week the global economy would contract 1.3 percent this year. The forecast marked a dramatic downgrade of previous estimates and set the tone for the meetings of the top steering committees of the 185-member IMF and its sister institution the World Bank.
But on Friday, the G7 major economies said the worst might finally be over — although the outlook remained clouded and difficult.
“Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging,” a G7 statement said. “Economic activity should begin to recover later this year amid a continued weak outlook and downside risks persist.”
The G7 — Britain, Canada, France, Germany, Italy, Japan and the US — said they were “committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again.”
US Treasury Secretary Timothy Geithner, the G7 host, said that “without underestimating the challenges we still face, there are signs that the pace of deterioration in economic activity and trade flows has eased.”
He too cautioned against any simple optimism that the worst global slump since the 1930s would be over quickly.
“We are right to be somewhat encouraged but we would be wrong to conclude that we are close to emerging from the darkness that descended on the global economy [in September],” he said in a statement.
A subsequent meeting of the G20, which includes the G7 and developing countries such as Brazil, China, India and Russia, ended without a statement.
The more positive G7 tone follows data showing that the downturn is easing but many officials remain reluctant to give the all-clear, warning that more bad news is to come which could blight any “green shoots” of recovery.
Others also warn that recovery or not, the human cost of the crisis is very high, still rising and should not be forgotten.
On Friday, a World Bank/IMF report said the crisis means up to 90 million more people will remain trapped in extreme poverty this year while the chronically hungry could top 1 billion.
“Our belief is that the crisis is far from over,” IMF chief Dominique Strauss-Kahn warned on Thursday.
“The beginning of the recovery has to come from the United States and will come from the United States,” Strauss-Kahn said, calling for greater efforts to restore the banking system to health. “You never recover before you complete the cleaning up of the balance sheet of the financial sector ... The recovery in 2010 relies a lot upon the effort that still has to be made in this domain so, I’m again asking on the eve of these meetings for more effort to be made in this direction.”
The IMF estimates that US, European and Japanese banks will have acknowledged only a third of their losses on soured assets between mid-2007 and next year, with the total losses put at near US$4 trillion.
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