G20 stimulus package key to 2010 recovery: source

By Dipankar De Sarkar, IANS,

London : The Group of 20 (G20) summit in London needs to agree to a fiscal stimulus package if the world is to make a 2010 recovery from the current economic crisis, an informed source said Wednesday.

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“There is a growing perception that there will be an L-shaped recovery from the current crisis, which has led to a certain degree of doom and gloom,” the source told IANS.

Economists say the L-shaped recovery is the worst of several recovery scenarios: unlike the bounce-back of the V- or U-shaped graphs, the L-shaped scenario foresees a prolonged slump, with investments bottoming out.

The source said International Monetary Fund (IMF) projections of a 2010 recovery are based on “a certain level of fiscal stimulus”.

“What we have done so far is enough for 2009,” the source said.

But if the G20 summit is unable to agree that level of stimulus because of differences between Anglo-Saxons and the Europeans, then the scenario becomes uncertain, the source said.

While the US and Britain – the so-called Anglo-Saxons – are keen on the G20 agreeing a stimulus package, European members France and Germany have resisted such calls, saying regulating the international financial mechanism is more important.

Prime Minister Manmohan Singh, one of the world leaders attending the London summit, said Tuesday that it is “necessary to ensure that stimulus is sustained and maintained in the year 2010”.

In comments made to the Financial Times, Manmohan Singh also said falling inflation provided room for further monetary easing in India “when and where it becomes necessary”.

“We will act in the short run to stimulate the economy to return to our medium growth potential, which is around 9 percent or so,” he said.