Finance ministers from the world’s richest economies gathered Friday to work out how to head off gathering storm clouds, as the new IMF chief urged bold action on the sovereign debt crisis.
After US President Barack Obama unveiled a $447 billion jobs plan to energise the world’s largest economy, finance chiefs and central bank governors of all of the Group of Seven (G7) group of industrialised nations gathered in the French coastal city of Marseille for two days of talks.
A report issued on the eve of the meeting said that a new recession in some rich countries cannot be ruled out and the eurozone crisis could deepen.
The Organisation for Economic Cooperation and Development (OECD) also revised sharply down its growth forecasts for the rest of the year for G7 nations and expected at least one quarter of contraction in Germany and Italy.
The European Central Bank also cut its growth forecasts for the eurozone for this year and next.
International Monetary Fund chief Christine Lagarde, who will also join the ministers from Canada, the United States, Japan, Germany, Britain, France and Italy, warned that there could be no foot-dragging.
“The key message I wish to convey today is that countries must act now — and act boldly — to steer their economies through this dangerous new phase of the recovery,” Lagarde said in a speech in London.
The world was suffering from “a crisis of confidence” amid heightened fears over the health of banks and sovereign debt, she said.
“All this is happening at a time when the scope for policy action is considerably narrower than when the crisis first erupted,” she said. “But while the policy options may be fewer, there is a path to recovery.”
Lagarde also welcomed Obama’s jobs plan which the president said was aimed at giving a kick-start to the stalled American economy.
The centrepiece of the plan is a deeper than expected $240 billion payroll tax cut for employers and employees meant to keep money in the pockets of those most in need, spur demand and encourage firms to hire new workers.
“It will provide a jolt to an economy that has stalled … You should pass this jobs plan right away,” Obama said late Thursday in Congress in a message to his Republican opponents .
The problems in the US economy — the OECD predicted growth of only 0.4 percent in the fourth quarter — are reflected in most other G7 countries and are helping to cast a long shadow over the stock markets.
Obama’s proposals failed to stir any excitement in Asian markets, the first to open after his speech.
Tokyo closed 0.63 percent lower after figures showed Japan’s economy shrank more than first thought in the April-June quarter.
European stock markets also dipped at the start of trading, with London, Frankfurt and Paris all recording falls.
The meeting comes at a time of high political tension in Europe’s major economies over the debt crisis, with governments having to railroad reform and austerity measures through parliament against major opposition.
Lawmakers in France, Spain and Italy have all passed legislation in recent days designed to demonstrate their determination to tackle the debt crisis which has racked the eurozone.
France — the host and this year’s head of the G7 and the wider G20 — said this week it wanted the two-day meeting to reach a “coordinated response” that would boost growth, create employment and help pay off debt.
Financial regulation will also be tackled in a debate hosted by future European Central Bank head Mario Draghi.
Libya’s new rulers have also been invited in a follow-up to the economic support for the so-called Arab Spring announced at a G7 meeting in May.
The fledgling Libyan administration will join Tunisia, Egypt, Morocco and Jordan as they explain how they plan to relaunch their economies and hear what help they can expect from the world’s major powers.