The head of the IMF warned on Monday it was too soon to discuss rolling back stimulus spending, saying the world economy had yet to weather the worst of a recession that has hammered industrial output and claimed a record number of European jobs.
We first have to exit the crisis before we can implement an exit strategy, and we haven't exited the crisis yet, International Monetary Fund chief Dominique Strauss-Kahn said during a visit to Kazakhstan.
U.S. and South Korean officials made similar comments, and an influential Chinese economist said China would not rebound rapidly. Stocks fell worldwide.
The 16-country euro zone lost 1.22 million jobs in the first quarter, official data showed, and a report on New York state factory activity showed manufacturing slowing again after some improvement in recent months.
In southern Italy, Group of Eight finance ministers meeting over the weekend described their economies in the most positive terms since the deepening nine months ago of the world's worst financial crisis since the Great Depression of the 1930s.
Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious, the IMF's Strauss-Kahn told a news conference in Astana. The large part of the worst is not yet behind us.
We see ... a recovery toward the beginning of 2010, 2009 is already done, we know it's a bad year, he said. At the global economic level, the growth will be minus 1.3 (percent), which is the first negative growth since the Depression.
STIMULUS SPENDING ENDORSED
In Washington, IMF officials said the United States was right to keep stimulus dollars flowing and that would help the country achieve growth of 0.75 percent in 2010 after a decline of 2.5 percent in 2009. Once that turnaround is assured, they said, officials should address the threat of soaring deficits.
Pressure has been building in the G8, particularly from fiscally conservative nations such as Germany and Canada, for plans to wind down stimulus as soon as it is no longer needed.
But ministers in Lecce differed over how quickly to start rolling back state spending plans and hiking interest rates.
The lack of inflationary pressures strengthens the hand of officials who argue against unwinding stimulus measures. Dallas Fed President Richard Fisher said on Monday inflation is not currently a risk to the U.S. economy. The Fed has cut benchmark U.S. interest rates to near zero and doubled the size of its balance sheet to $2 trillion to help battle the downturn.
Treasury Secretary Timothy Geithner indicated the United States was unlikely to tighten policy soon, saying: It is too early to shift toward policy restraint.
Writing in the Washington Post on Monday, Geithner said a sweeping financial regulation reform plan to be released this week would target capital and liquidity requirements, impose robust reporting requirements on issuers of asset-backed securities and require the originators of those securities to retain a financial interest in their performance.
The largest and most interconnected firms could expect to face more stringent requirements as well as consolidated supervision by the Federal Reserve.
The factory sector in New York state shrank at a more severe rate in June than the previous month, the New York Federal Reserve said in a report.
The New York Fed's Empire State general business conditions index fell to minus 9.41 in June from minus 4.55 in May. The survey of manufacturing plants in the state is one of the earliest monthly signposts to U.S. factory conditions.
We've got a little bit of cold water thrown on the manufacturing sector's recovery after seeing some persistent improvements, said Eric Lascelles, chief economics and rates strategist at TD Securities in Toronto.
In the Euro zone, the number of employed fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995.
Markedly weakening labor markets are a major threat to recovery prospects in the euro zone, said Howard Archer, economist at IHS Global Insight.
Further underlining the fragile state of the global economy, an influential economist said China would not see a rapid rebound and South Korea's finance minister said its economy was still sliding, although the pace had slowed.
Li Yang, a former adviser to the People's Bank of China, said he expected China's recovery to be W-shaped -- meaning growth will falter once fiscal and monetary stimulus wears off, before regaining momentum.
The economy is certainly still sliding, although the pace of decline is slowing, said South Korean Finance Minister Yoon Jeung-hyun. Let me make it clear that we are not at the stage for a change in the aggressive fiscal stimulus.
The dollar rose across the board after Russia said its role as the world's main reserve currency was unlikely to change in the near future, hitting energy and commodity prices. Oil, mining and financial shares led the global downturn in stocks.
U.S. stock markets closed lower, with the broad S&P 500 down 2.4 percent after European shares shed 2.5 percent and Tokyo's Nikkei lost 1 percent.
Global equity prices have risen by well over 30 percent since indexes hit their lows in March as investors have become less gloomy on the prospects for economic recovery. Monday's declines came as investors around the world locked in profits.
It seems to me what's going down the most is the stuff that gone up the most. There's been enormous moves both in equities and in commodities recently, said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.
Analysts said a net capital outflow from the United States of $53.2 billion in April reflected a reversal of the global risk aversion that had buoyed Treasuries in recent months.
(Writing by Todd Eastham; Reporting by Reuters bureaus; Editing by Gary Hill)