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Did the G-8 summit give the economy short shrift?

July 12, 2009 |  1:01 pm

Amid the worst global economic decline since the 1930s, the leaders of the major industrialized nations met last week in Italy and decided . . . well, not much.

High Frequency Economics’ Carl Weinberg, who believes that governments' response to the deep recession hasn't been strong enough, wrote in his Friday newsletter on the Group of 8 summit's results -- or lack thereof:

"G-Whatever Heads of State may have agreed to push for a conclusion to the Doha round of trade talks, but that will affect nations’ terms of trade a decade from now, not next week or next quarter. Keeping global warming limited to two degrees -- if that can be done, since no one was willing to commit resources to make it happen -- is an agreement to accept limited failure to protect our planet, rather than a success.

"Summitfoto So our core story about the world economy remains unaffected by the goings-on in Italy. World trade imploded by 35% over the eight months ended in March. Summiteers did not even discuss this! World industrial output decreased by 20%-to-30%, depending upon which country you consider. Unmentioned! Prices and wages are slowing in most countries, and already falling in some.  . . . Among the world's largest economies, only China continues to grow. The world economy is severely damaged and recovery is nowhere in sight."

Maybe the summiteers are confident that we're beginning to see an upturn in trade, as May data on U.S. exports hinted. Their statement on the economy cited "signs of stabilization," but added that "the situation remains uncertain and significant risks remain to economic and financial stability."

Weinberg believes that major countries should be doing more specifically to re-stimulate trade, the revival of which is "a precondition to a return to global prosperity," he asserts.

Although slumping consumer spending in the developed world obviously explains much of the slide in trade, Weinberg believes  there's more to it than that. He suspects that a big problem is a lack of financing for importers and exporters, a side-effect of the credit crunch. To fix that, "All that would be needed are public sector guarantees of trade credits written by any private sector bank," Weinberg writes. "This ought not to be a big leap for governments that have already guaranteed so much lending to shaky institutions around the globe."

-- Tom Petruno

Photo: French President Nicolas Sarkozy, Russian President Dimitri Medvedev and President Obama at last week's summit of world leaders. Credit: Vincenzo Pinto / AFP Getty Images

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