G20 to warn global recession is 'still a danger' despite government intervention

By SAM FLEMING FOR MAILONLINE
Updated:

The global recession has yet to be vanquished despite unprecedented government intervention, finance leaders will warn this week.

G20 ministers are expected to agree to hold interest rates at rock-bottom levels alongside fiscal and banking support when they meet in London on Friday and Saturday.

'Everyone thinks it is too soon to declare victory,' said one official yesterday. 'The general feeling is that support measures need to be in place until recovery is assured.'

Chancellor Alistair Darling

Chancellor Alistair Darling, who has indicated that the Government could still hold a review of public spending before going to the country in a general election. PRESS ASSOCIATION Photo. Issue date: Saturday July 11, 2009. In an interview with The Daily Telegraph, he said the Government would have to tell people "the lie of the land" when it came to the public finances. File photo dated 17/2/2008. See PA story POLITICS Spending. Photo credit should read: Clive Gee/PA Wire.

The words came as analysts at a major European bank warned a 'short-lived' recovery is likely to give way to an 'Ice Age' of deflation.

Strategist Albert Edwards of Societe Generale said: 'Firm evidence is emerging that the global economy is sliding towards a full-blown deflationary episode once this recovery falters.'

Finance ministers are convening amid signs of a nascent recovery. Japan, Germany, France and Australia all grew in the second quarter.

Chancellor Alistair Darling has predicted Britain will move back into positive growth by the end of the year.

But the tentative improvements are being fuelled by trillions of pounds of taxpayer support, and there are fears of a relapse once this is withdrawn. Finance ministers are planning to discuss a ' coordinated' strategy of fiscal and monetary tightening at the London summit, officials said.

This suggests that central banks may be pressured to lift interest rates simultaneously, mirroring last year's synchronised cuts. But while it is not premature to discuss 'exit strategies', it is too soon to execute them, officials said.

In a sign the crisis is far from over, the European Union yesterday bolstered funding lines to the International Monetary Fund amid fears that the Washington lender is running low on firepower.

Governments have pledged close to $500billion (£308billion) to help the IMF battle meltdowns in developing countries. This week's meeting is a prelude to a gathering of G20 leaders in Pittsburgh later this month.

Bank pay will top the agenda in both summits. Last night there were signs Britain was isolated in Europe in holding out against French suggestions that there should be mandatory caps on bonuses.

Anders Borg, the finance minister of Sweden, which holds the rotating EU presidency, demanded an end to the bonus culture. 'The bankers are partying like it's 1999, and it's 2009,' he said.

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