Group of Eight leaders find recovery too fragile

L'Aquila, Italy: Group of Eight leaders said the economic recovery from the steepest recession since the Second World War was too fragile for them to consider reversing efforts to pump money into the economy.

President Barack Obama pressed for the door to remain open to more stimulus measures as a renewed stock-market drop stirred concern that $2 trillion (Dh7.3 trillion) spent worldwide so far hasn't jolted consumers and businesses back to life.

"The G8 needed to sound a second wake-up call for the world economy," British Prime Minister Gordon Brown told reporters on Wednesday in L'Aquila, Italy, after the opening sessions of the leaders' annual gathering.

"There are warning signals about the world economy that we cannot ignore."

Divergences over what to do next and calls from developing nations to do more to counter the slump underscored the G-8's limited room for manoeuvre.

The biggest borrowing spree in 60 years has failed to halt rising unemployment and left investors doubting the strength of the recovery. The MSCI World Index of stocks slid for a fifth day. The 23-nation index has dropped 8 per cent since a three-month rally ended on June 2.

"We've been advocating stimulate now, consolidate later," Angel Gurria, secretary general of the Organisation for Economic Cooperation and Development, told Bloomberg Television from the summit. "You're not going to remove the stimulus now. It's too early."

The International Monetary Fund echoed that scepticism, upgrading its 2010 growth forecast while saying the rebound will be "sluggish" and urging governments to stay the economic stimulus course.

Emerging countries like China will lead the way, expanding 4.7 per cent next year, the IMF said on Thursday, up from an April prediction of 4 per cent.

The Washington-based lender forecast growth of 0.6 per cent in the advanced economies, up from expectations of stagnation.

"It's a very volatile situation," European Commission President Jose Barroso said in a Bloomberg Television interview in L'Aquila.

"We are not yet out of the crisis, but it seems now that the free fall is over."

In the US, a jump in the jobless rate to a 26-year-high of 9.5 per cent in June and a 6.9 per cent drop in the Standard & Poor's 500 Index in the past month raised questions whether Obama's $787 billion stimulus package is turning the world's largest economy around.

Democrats in Congress are split over whether to spend more, adding to a deficit that the IMF puts at 13.6 per cent of gross domestic product in 2009, the highest since the Second World War.