London: The head of the IMF questioned on Monday any debate about when to roll back stimulus spending, saying the world economy had yet to weather the worst of a recession that claimed a record number of European jobs.
The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. Employment during the first quarter fell 1.2% year-on-year, the deepest annual drop since measurements started in 1995.
Even if some form of economic recovery is not far off, analysts say unemployment will climb for many months to come.
Underlining the fragile state of the global economy, an influential economist said China would not see a rapid rebound and South Korea’s finance minister said its economy was still sliding, although the pace had slowed.
But in southern Italy, Group of Eight (G8) finance ministers meeting at the weekend described their economies in the most positive terms since the collapse of US bank Lehman Brothers nine months ago heightened the world’s worst financial crisis since the Great Depression of the 1930s.
“Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious,” International Monetary Fund chief Dominique Strauss-Kahn said during a visit to Kazakhstan. “The large part of the worst is not yet behind us.”
Pressure has been building in the G8, particularly from fiscally conservative nations such as Germany and Canada, for plans to wind down stimulus as soon as it is no longer needed.
But ministers in Lecce differed over how quickly to start rolling back state spending plans and hiking interest rates.
Treasury Secretary Timothy Geithner indicated the United States was unlikely to tighten policy soon, saying: “It is too early to shift toward policy restraint.”
Most experts do not expect major tightening of fiscal and monetary policy in the developed world before next year. According to media, France is headed in the opposite direction.
Paris plans to pump an extra €3.5 billion ($4.92 billion) into stimulus measures earmarked for 2010 and is preparing to increase its public budget deficit forecast for 2009, Les Echos newspaper reported on Sunday.
Li Yang, a former adviser to the People’s Bank of China, said he expected China’s recovery to be “W-shaped” -- meaning that growth will falter once fiscal and monetary stimulus wears off, before regaining momentum.
“China should not count on a turnaround of external demand to bring about its recovery,” Li, director of the finance institute at the Chinese Academy of Social Sciences, was quoted by the Shanghai Securities News as saying.
In Britain, a leading business group said the country would pull out of recession earlier than previously forecast, but that a sustained recovery was not assured.
South Korean finance minister Yoon Jeung-hyun said it was too early to consider reversing stimulus policies.
“The economy is certainly still sliding, although the pace of decline is slowing,” he said. “Let me make it clear that we are not at the stage for a change in the aggressive fiscal stimulus and financial easing policy stance.” Aviation leaders attended the Paris Air Show on Monday expecting only crumbs of new business to bolster an industry hurt by the crisis, which has cast doubt on the ability of airlines to pay for the roughly $800 billion of planes on order.
“It is out of the hands of Airbus and Boeing and in the hands of the travelling public, who are voting with their feet and not getting on planes or buying tickets,” said Richard Aboulafia, vice president at US aerospace and defence consultancy Teal Group.
Shares fell with some market players saying the cautious tone from the G8 gathering had prompted investors to cut back their bets on riskier assets.
European shares shed 1.6% on Monday, tracking losses in Asia. Tokyo’s Nikkei closed 1 percent lower.
The European benchmark index is up 35.9% from the lifetime low it hit on 9 March, as investors have become less gloomy on the prospects for economic recovery.
“We’ve verified that markets have bottomed out but we have yet to see what sort of form the recovery will take and we need clear proof that it will continue,” said Masayoshi Okamoto, head of trading at Jujiya Securities.