EDITORIAL: Recovery still elusive

Nearly a year has passed since the Group of 20 (G-20) summit was held in Washington to discuss ways to prevent the global financial crisis from developing into a repeat of the Great Depression in the 1930s.

Coordinated policy efforts among the major industrialized nations are working, and the global economy appears to be on the road to recovery. All signs point to the crisis as having bottomed out.

But the harsh economic downturn is far from over, with both employment and production contracting at an alarming rate.

At their meeting in Britain last weekend, finance ministers and central bank governors of the G-20 nations agreed to maintain fiscal and monetary policy support until recovery is assured. It was a sensible decision.

The world economy as a whole is still on life support. In the United States, the epicenter of the financial market upheaval, the economy expanded in the July-September period, posting the first growth in five quarters. But the expansion was due mainly to the effects of the government's massive stimulus spending to prop up the economy.

The unemployment rate in the United States climbed above 10 percent in October. Even so, large nonbank lenders and regional banks are failing one after another, raising concerns about souring commercial real estate loans.

In an understandable response to the disturbing situation, the administration of President Barack Obama has said it will consider additional measures to nurse the U.S. economy back to health.

Economic recovery in the 16 euro-zone countries is also on a shaky footing, although the region is expected to eke out tepid economic growth in the second half of this year. The overall jobless rate in the EU is almost certain to surpass 10 percent.

In stark contrast, China achieved robust economic growth of 8.9 percent in the July-September quarter.

The Chinese economy is showing amazing strength. It is expected to grow by 8.4 percent for all of 2009, compensating for three-quarters of the decline in demand in the United States, Europe and Japan, according to projections by the World Bank.

The economic growth of China and other emerging countries is serving as the main driving force of the world economy's recovery from the crisis.

But that is not all good news as a confluence of factors are planting the seeds of new imbalances in the world economy.

The ultra-easy monetary policies maintained by most industrial nations due to concerns of a deflationary downturn are creating huge flows of money that could eventually give rise to bubbles in stock and real estate markets in emerging economies.

In fact, swelling flows of credit and foreign capital are driving up stock and real estate prices in China, triggering concern about speculative excesses and a possible backlash.

Imbalances due to profligate consumer spending and borrowing in some countries, combined with excess savings and production capacity in others, were among the factors behind the world economic crisis.

One key topic at the latest meeting of G-20 economic policymakers was the creation of a new system for international policy coordination to forestall the emergence of new imbalances in the world economy while correcting the existing imbalances.

The G-20 conference ended up deciding to build up in stages such a framework for balanced growth within a year.

Under this system, countries will present their economic policies and try to secure balanced global economic growth through mutual monitoring and discussions.

As their current fiscal expansion to reenergize their economies keeps producing massive budget deficits, industrial nations may find it increasingly difficult to wean themselves from easy monetary policies.

If industrialized nations are to bring a halt to these imbalances, they must make every possible effort to regain economic health as quickly as possible.

The world's economic situation will continue to pose formidable challenges to G-20 policy coordination efforts as well as individual countries.

--The Asahi Shimbun, Nov. 10(IHT/Asahi: November 11,2009)