Lower interest rates and fiscal stimulus measures in the US and Europe have put global growth on track for recovery this year, though deflation and a banking crisis in Japan mean risks remain, policy makers said.
"The doomsday scenario never materialized" after the Sept. 11 terrorist attacks, International Monetary Fund Managing Director Horst Koehler told a panel at the World Economic Forum.
"This has something to do with a coordinated effort by the US and Europe."
The US economy, the world's largest, entered recession last March. Growth slowed or stopped in most other countries, crimping profits and share prices around the world. That prompted central banks across the world to trim borrowing costs and governments to offer fiscal stimulus.
In the US, the Federal Reserve cut interest rates eleven times last year, to a four-decade low of 1.75 percent, and the government mailed out advance tax refunds worth US$38 billion.
Across the Atlantic, the European Central Bank lowered the cost of money in the dozen countries that share the euro four times, the Bank of England cut rates seven times, and governments offered various stimulus measures.
European officials have been criticized for not matching the US administration's effort in sustaining global expansion.
Stalling growth has sapped tax revenue, making it hard to increase public spending without breaching the EU's growth and stability pact that requires member states to keep the budget deficit below three percent of gross domestic product.
Nevertheless, the French government offered 1.07 billion euros (US$860 million) in tax rebates in September and January for low-income workers.
Following the Sept. 11 terrorist attacks in the US, European governments ruled out direct aid to companies, though they promised airlines insurance guarantees.
"In Europe, we have taken action which by its size can be compared to US action," said Laurent Fabius, France's finance minister. As a result "recovery will be synchronized," he said.
There are suggestions of a rebound. After shrinking at an annual rate of 1.3 percent in the third quarter, the US economy unexpectedly grew 0.2 percent in the final three months last year.
"There are indications the US is picking up," said World Trade Organization Director-General Mike Moore.
On the other side of the Atlantic, French, German and Italian business confidence is rising.
"The signs are mixed, but they always are at the start of a recovery," Canadian Finance Minister Paul Martin said in an interview.
"The expectation is for a rebound in the second half of the year."
The wildcard remains Japan, policymakers said. The world's second-largest economy is mired in its third recession in a decade, prices fell last year at the fastest pace in 30 years, and national debt is expected to reach 140 percent of gross domestic product by March of next year.
Its banking sector is also crippled by ?151 trillion of non-performing loans.
"If Japan does not grow more rapidly in the future, it would not be good for the world economy," said Kenneth Dam, US deputy Treasury secretary. Its government should address the bad loan problem and also restructure its industrial base as "for every bad loan, there is a bad asset," he said The US official expressed confidence that Prime Minister Junichiro Koizumi would push ahead with reform. A ?2.5 trillion plan to build more roads and homes, the second such package in two months, will now go to full session of the upper house after being approved by its budget committee yesterday and the more-powerful lower house on Tuesday.
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