World leaders: economy is not out of the woods

City A.M. Reporter
Top policymakers yesterday warned the world economy is not out of the woods and a global recovery is still far from secure, urging caution as central banks work on withdrawing critical support.

China’s Vice Premier Li Keqiang, the man tipped to become the country’s next premier, said there were still “twists and turns” ahead as the world pulls out of recession, echoing calls to caution from bankers and other leaders at the annual World Economic Forum in the Swiss ski resort of Davos.

His comments were echoed by South Korean President Lee Myung-bak, who heads the G20 this year, and urged member countries to tread gently as they begin to unwind extraordinary monetary stimulus measures.

John Lipsky, first deputy managing director of the International Monetary Fund, said even signs of a recovery and a move to raise growth forecasts showed differences in the speed of recovery: “Don’t exit too early, think about the long term,” he said.

Bankers, however, warned also of the risk of pulling out too late, potentially leading to distortions in competition.

“It’s a narrow path,” the head of the Bank for International Settlements, Jaime Caruana, said, arguing for a move “neither too early nor too late”.

Business leaders joined the call for fiscal discipline as an important element in restoring sustainable growth. “We have shamelessly borrowed from our children. And we used it, we didn’t invest it. That’s the picture we’re in,” said Ben Verwaayen, chief executive of Alcatel-Lucent.

“We cannot be complacent,” said Sergio Ermotti, deputy chief executive of Italian bank Unicredit.

Wall Street executives attending the forum welcomed US President Barack Obama’s plan to create jobs and a softening of his attack on banks in his State of the Union address, but questioned whether the proposals would become law.