World finance officials meeting in Washington on Friday say they expect the global economic crisis to begin to unwind by year-end, citing encouraging early signs of recovery.
The Group of Seven major economies said the worst global slump since the 1930s Great Depression appeared to be approaching a bottom but also warned the outlook remained highly uncertain.
“Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilisation are emerging,” the G7 finance chiefs said in a statement after their meeting.
“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 United States – said they were “committed to act together to restore jobs and growth and to prevent a crisis of this magnitude from occurring again”.
As part of efforts to tackle the crisis, the G7 said they would continue to provide and increase resources for the International Monetary Fund and other multilateral institutions to ensure they could help restore global financial stability.
“We will take whatever actions are necessary to accelerate the return to trend growth (rates) while preserving long-term fiscal sustainability,” the G7 said, apparently referring to concerns that governments are taking on too much debt to fund economic stimulus programs.
They also agreed to continue, “as needed, to restore lending, provide liquidity support, inject capital into financial institutions, protect savings and deposits and address impaired assets”.
The current crisis was “the deepest and most widespread economic downturn and financial stress witnessed in decades”, the G7 said, saying they “have acted resolutely to support growth and restore confidence in the financial system and the flow of credit”.
US Treasury Secretary Timothy Geithner, the host of the G7 meeting and a meeting of the Group of 20 afterward, reinforced the cautiously upbeat tone.
“We’re seeing some encouraging signs. And on actions and programs initiated, we’ve seen risk premiums recede and credit spreads come down, and some improvement in financial markets. That’s very encouraging; we need to reinforce that,” he told a news conference after the G7 meeting.
“Some measures of spending, some measures of output activity in the United States and other economies may have begun to stabilise. The financial conditions of some markets have begun to show modest improvement, and these are encouraging signs,” he said.
Still Geithner, like other officials, cautioned against reading too much into the “green shoots” of recovery.
“It’s too early to say the risks have receded and it’s too early to conclude that we’re beginning to emerge from this remarkably challenging set of pressures still working its way through the financial system,” he said.
The G7 meeting, held traditionally ahead of the IMF and World Bank’s meetings over the weekend, reviewed progress on measures agreed at the G20 London summit earlier this month to tackle the crisis.
Geithner, in a statement, said “we are making progress” in following up on the London G20 summit, with several countries, notably Japan, adopting more stimulus measures.
Geithner said that in the longer-term, more work is needed on financial sector regulatory reform to ensure there is no repeat of the crisis, with international institutions also upgraded and strengthened.
“When we reach the expansion phase of the coming economic cycle – which we will – the resulting global expansion must be more enduring than the one that ended catastrophically in 2008.
“The global expansion must be balanced – propelled by domestic demand growth in all economies,” he said in a statement.
Geithner’s comment reflects US concerns that its open market has for too long allowed some of its trade partners, especially in Asia such as China, to build their economy on exports rather than home demand, setting up dangerous international trade and currency imbalances which now need to be corrected.