Trillions of dollars committed to stimulus packages are starting to work, but governments may have to do more to pull the world economy out of its worst recession in eight decades, the head of the OECD said on Monday.
Angel Gurria, secretary-general of the Organisation for Economic Cooperation and Development, joined a chorus of top officials seeking to temper hopes for a speedy recovery that kept world stock markets on a six-week winning streak.
Gurria told Reuters the world economy would not bottom out until next year and would probably only start growing again towards the end of 2010.
Speaking on the sidelines of a forum in Beijing, Gurria said China's 6.1 percent annual growth in the first quarter showed its "very powerful, very strong" stimulus was starting to have an impact and noted some early signs of Washington's efforts to stabilise the economy.
"They are starting to see a few positive signals," he said, but he added that this year would remain extremely difficult for the world economy, with 30 developed nations suffering a combined contraction of 4.3 percent.
A succession of U.S. officials have voiced confidence in recent days that the world's economy was turning the corner, but President Barack Obama and his top economic adviser warned that the economy remained under stress and still faced pain ahead.
"We're not out of the woods. This is still a difficult time for the economy. Credit is still contracted," Obama said on Sunday while attending the Fifth Summit of the Americas in Port of Spain, Trinidad and Tobago.
UPS AND DOWNS
European Central Bank President Jean-Claude Trichet struck a similar note, playing down in a newspaper interview some recent encouraging data that raised market hopes the global economy may have already seen the worst of the financial and economic crisis.
"With respect to 2009, let's be prepared for having a very difficult year," Trichet told Japanese newspaper Mainichi.
"In the course of the year, you have ups and downs: a mixture of better indicators and worse ones. Therefore, I would not overemphasize whatever we are observing."
In a series of interviews with Japanese media, the ECB chief suggested the central bank was prepared to trim its benchmark rate by a cautious quarter point to a record low of 1 percent next month. But he kept markets guessing what other unconventional steps the ECB could take to help the euro zone economy, which pushed the euro down to a one-month low against the dollar on Monday.
Unlike U.S., Japanese and British central banks, which have brought rates close to zero and began direct asset purchases, the ECB is reluctant to cut rates much beyond 1 percent and has yet to make use of its unconventional arsenal.
Signs of some stability returning to the battered financial industry, cautious optimism about corporate earnings and data suggesting the free-fall in global trade and economic activity was slowing, spurred talk of "green shoots" of recovery.
The latest of those early signs came on Monday in a survey that showed capital spending by U.S. firms was showing some improvement, while the pace of lay-offs was slowing slightly.
Market bets that the U.S. and world economy reached their low point in the final quarter of 2008 and the first quarter of this year have buoyed world stock markets by nearly a third since early March. Asian stocks on Monday held on to recent gains perched near a six-month high struck last week.
MIXED DATA
But that optimism confronted policymakers with a new challenge: how to prevent too much optimism from denting public support for more spending and yet avoid undermining a recent tentative pick-up in investor and consumer confidence.
Just like Trichet, White House Director of the National Economic Council Lawrence Summers pointed out that recent economic signals were still mixed at best.
"We've seen some more mixed statistics after a period when there was no positive statistics to be found," Summers told NBC's "Meet the Press" programme.
"There are still substantial risks … there are downside contingencies that we have got to prepare for," Summers said.
OECD's Gurria said the jury was still out on whether stimulus measures adopted so far by Washington, Beijing and many other governments around the world were sufficient.
"Right now, it's a bit of speculation. We'll have to see. But we have to be ready that if they're not, we just go ahead and make extra efforts," he said.
The International Monetary Fund, which starts its spring meeting in Washington on Saturday, is expected to renew its plea to policymakers to keep the taps with public funds wide open well into 2010.
Obama's administration sees eye to eye with the IMF on the need for more action and Beijing has not ruled out topping up its $585 billion stimulus. But Europeans are more reluctant to commit themselves to more spending, arguing that rushing out ever new measures without giving earlier steps time to work was counterproductive.
"Rapid disbursement of the money, which has already been committed, is essential for confidence. In this domain, I would say don't pile up new decisions, but execute what has already been decided," Trichet said.
