Economic crisis warnings mount

France threatens to walk out of G20 meeting

LONDON — Top international organizations issued bleak forecasts for the world economy on Tuesday as France threatened to walk out of a high-stakes summit of the G20 group of the world’s top 20 economies, which is being overshadowed by US-Europe divisions.

The World Bank forecast a contraction of 1.7 percent in the global economy this year, the first such outcome since World War II, warning that the decline would hit the vulnerable developing world particularly hard.

The Organization for Economic Cooperation and Development (OECD), a Paris-based grouping of the 30 leading world economies, said in a separate report that its member state economies would shrink 4.3 percent this year.

“The world economy is in the midst of its deepest and most synchroniZed recession in our lifetimes, caused by a global financial crisis and deepened by a collapse in world trade,” OECD chief economist Klaus Schmidt-Hebbel said.

The forecasts came as France ratcheted up the pressure ahead of the G20 summit in London on Thursday, saying President Nicolas Sarkozy would walk out unless there is an agreement on key aims such as more financial regulation.

“President Sarkozy was very clear on that front; he said if the deliverables are not there, I won’t sign the communiqué,” French Finance Minister Christine Lagarde told the BBC. “It means walking away. I think he’s very determined.”

On a visit to the central French town of Chatelleraut to promote France’s plans for economic recovery, Sarkozy said there was “no choice” but for the summit to get results and warned against a meeting “for nothing.”

While the US favours fiscal stimulus to tackle the effects of the crisis, European nations led by France and Germany are skeptical about spending more than they already have, favoring tighter financial regulation instead.

British Prime Minister Gordon Brown, the G20 summit’s host, said the talks would agree new global rules on bankers’ pay — a focus for public resentment — and he urged world leaders to restore morality to global finance.

In a speech at London’s historic Saint Paul’s Cathedral, Brown lamented the relative lack of regulation of the financial sector in recent years, saying: “Free markets became worshipped as a god but that god was false.”

European Commission chief Jose Manuel Barroso meanwhile played down the summit talks, warning they would not yield a “miracle solution” for the financial crisis and saying another summit may be needed later this year.

Underlining the gravity of the crisis, the OECD forecast that the United States, the world’s biggest economy, would contract 4.0 percent this year, while the euro zone would shrink by 4.1 percent and Japan 6.6 percent.

The Asian Development Bank also said growth in Asia’s developing economies would nearly halve to 3.4 percent in 2009, adding that the outlook was “bleak” and that more than 60 million people would remain mired in poverty in the region.

The report said China, the major driver of the region’s growth in the past decade, would expand 7.0 percent this year, below Beijing’s target of 8.0 percent seen as the minimum required to prevent mass unemployment.

A massive shake-up meanwhile continued to roil the US auto industry, a day after President Barack Obama warned General Motors and Chrysler would have to get their act together before getting any fresh state aid.

The head of Italian auto giant Fiat, Sergio Marchionne, left for Detroit on Tuesday for meetings with Chrysler as the White House gave the ailing US company 30 days to sign a partnership with Fiat or face possible bankruptcy.

The fallout also worsened on the jobs front with unemployment in Germany, Europe’s biggest economy, edging higher. In Japan, the world’s second largest economy, the jobless rate hit a three-year high of 4.4 percent.

In France, anger over job cuts sparked another “boss-napping” incident when workers detained five managers from US firm Caterpillar at a plant in the eastern city of Grenoble in protest at plans to slash hundreds of jobs.–Agence France-Presse