China's Wen: global economy double-dip possible

Wen told an audience of Japanese business executives that it was too early for economies to consider exiting stimulus spending that has shored up growth since the global financial crisis hit in 2008.

But he also warned that mounting government debt risks could frustrate full economic recovery.

Some people say the global economy has already recovered, and now we can consider exit mechanisms. I believe that this judgment is premature, Wen said in the speech, given on the second day of a three-day visit to Japan.

High joblessness in the United States and other economies, and sovereign debt risks laid bare by Greece's crisis could all drag down the global recovery and trigger a second dip in growth, Wen said.

Some countries have experienced sovereign debt crises, for example Greece. Is this kind of phenomenon over? Now it seems that it's not so simple and we must take a full measure of the difficulties, he said.

Some people ask is there the possibility of a double dip in the world economy? I believe that we can't say with absolute certainty, and so we must undertake close observation and act to prevent a double dip, he said later.

The world economy is stable and beginning to revive, but this revival is slow and there are many uncertainties and destabilizing factors.

Wen gave his blunt overview of the Chinese and world economy in a speech that he said was not from a written script. No script could be seen on the podium.

NO MENTION OF YUAN

But the Chinese leader stayed away from mentioning the yuan exchange rate, which many politicians and economists in the United States and elsewhere say is held artificially low and is exacerbating the global economic imbalances that Wen described.

Wen's cautious assessment of China's trade outlook suggested that he could see dangers in quickly moving to lift the value of the yuan, which would make the country's exports relatively more costly.

China's exports appeared to have bounced back in the first quarter, but that was compared to a low base last year, said Wen. China recorded a $1.7 billion trade surplus last month, defying expectations of a second straight deficit after March's $7.2 billion shortfall.

For (Chinese) external trade to revive to pre-financial crisis levels needs time and is a difficult process, he said.

Those uncertainties make it all the more important for China and other economies to refrain from exiting stimulus spending policies launched to counter the financial crisis, said Wen.

In these circumstances, all countries must coordinate in unity and strengthen policy support for the economy. There cannot be the least relaxation, he said.

To ensure that the (Chinese) economy continues growing in a steady, relatively fast pace, we must maintain a certain level of intensity in economic stimulus, he said.

China's economic growth reached 11.9 percent year-on-year in the first quarter.

While China ploughs ahead with expansionary fiscal policies, however, it will also keep a close eye on inflationary pressures that have risen in recent months, Wen said.

China's consumer price index (CPI) rose 2.8 percent in April from a year earlier, nudging close to the target of keeping it within about 3 percent across the year, he noted.

Achieving this task is an important goal for this year, he said.

(Editing by Edwina Gibbs and Charlotte Cooper)