The global economy is unlikely to fall back into recession but there are risks, World Bank President Robert Zoellick said on Tuesday. "I don't believe that the United States or the world will go into a double-dip but there's high degrees of uncertainty," Zoellick told reporters in Singapore.
The United States is more likely to go through a period of slow growth with ongoing high unemployment, he added. His comments come after Singapore Finance Minister Tharman Shanmugaratnam, who also chairs a key International Monetary Fund committee, said the world is "more likely than not" to see a recession as growth in both the United States and Europe have fallen to "stall" speed. On Europe, the World Bank president said Europe Union had to consider working closer in the area of fiscal policy to address the problems facing its members.
"One direction is to deepen the fiscal union," he said, adding the policies pursued up to now, such as the creation of the European Financial Stability Facility and bond buying by the European Central Bank, could only buy the EU time to address the problems it faced.
Group of Seven financial leaders, worried about risks to global growth, are likely to agree this week to keep monetary policy accommodative, slow fiscal consolidation in countries where that is possible and implement structural reforms, a G7 source said. Finance ministers and central bank governors of the United States, Canada, Japan, Germany, France, Italy and Britain (G7) meet on Friday in the French port of Marseilles to discuss what action to take to prop up the slowing global economy. "The main issue will be the slowdown in the global economy and what is the best way to tackle that," a G7 official with knowledge of the preparations for the meeting said.
The source said that there was a sense among G7 countries that the global economy had entered the most difficult period since the collapse of Lehman Brothers and that there was a risk of recession - either in technical terms, seen as two straight quarters of contraction, or with positive growth but a widening output gap. The G7 is also likely to discuss the IMF's call for further re-capitalisation of European banks to help cushion the blow from the region's sovereign debt crisis, the sources said.