‘Worst over for world economy’

Leaders of the Group of Eight nations say that the worst has passed for the global economy, an aide to U.K. Prime Minister David Cameron said after summit talks on promoting employment and growth.

While economic prospects remain weak, downside risks have abated thanks to actions taken by policy makers in the U.S., euro area and Japan, and due to the resilience of emerging-market economies, the aide said Monday, following the first of a two-day meeting in Enniskillen, Northern Ireland.

G8 leaders are under pressure to spur growth and reduce unemployment as the unexpected slowing of the Chinese economy in the first quarter sparked concerns of a weakening global expansion. The euro-area economy is shrinking for a second year and the U.K. is emerging from a double-dip recession amid investor concern that the U.S. Federal Reserve is preparing to unwind stimulus. 

European leaders said during the summit debate on the economy “that we have overcome the manifest crisis of confidence, but that a huge amount of work still lies ahead,” German Chancellor Angela Merkel said. Growth requires “sound finances” and structural change in EU economies, she told reporters.

Merkel expressed concern about Japan’s effort to end two decades of economic stagnation, which includes bond-buying by the Bank of Japan and $102 billion in planned stimulus spending by Prime Minister Shinzo Abe. Merkel, who met Abe separately at the summit, said Japan’s budget deficit “surely has to be scaled back in the medium term.”

Merkel, who leads Europe’s biggest economy, is running for a third term in Germany’s Sept. 22 election on a platform of preserving the euro in return for economic overhauls and debt reduction throughout the 17-nation currency union.

Undescoring the fragile outlook, the International Monetary Fund trimmed its 2013 global growth forecast in April to 3.3 percent from 3.5 percent. The estimate for 2014 is 4 percent as the U.S. picks up and the euro area begins expanding again.

In search of a recipe for growth while trimming budget deficits, leaders announced Monday the start of talks next month on a trade deal between the U.S. and the European Union, which Cameron said could be the biggest bilateral deal ever. Merkel said she envisioned an agreement within “a few years.”

Reaching a deal “is going to be a priority of mine and my administration,” U.S. President Barack Obama said. (Bloomberg)