GLOBAL ECONOMY WEEKAHEAD-Too soon to say world economy in clear

WASHINGTON, April 20 - World finance leaders gathering in Washington this week to assess what remains to be done to fix the global economy may end up trampling on the talk of "green shoots" of recovery.

Since the last International Monetary Fund meetings in October, the mood has clearly improved, and there is reason to believe that the worst of the slump may soon be over, at least in the United States and China if not in Europe and Japan.

But that doesn't mean the economic danger has passed, and the IMF is likely to pressure finance ministers and central bankers to keep the stimulus taps wide open through 2010.

"The odds of a depression have diminished substantially for now," said Kenneth Rogoff, a Harvard University professor and former IMF chief economist. "That doesn't imply that we're going to have a V-shaped recovery. It's much more likely that the recovery is tepid."

IMF Managing Director Dominique Strauss-Kahn said last week that while the free-fall in the global economy was abating, 2009 would "almost certainly be an awful year."

The IMF begins its spring meeting here on Saturday. Finance ministers from the Group of Seven rich nations and the larger G20 club of developed and emerging economies meet on Friday.

Coming so soon after the April 2 G20 Summit in London, this week's gatherings are unlikely to generate much new policy. Instead, the focus is likely to be on filling in more details to the economic recovery framework sketched out in London, which included tripling funding for the IMF.

Strauss-Kahn wants countries to stay focused on repairing bank balance sheets and shoring up the broader economy. He has warned that big government spending packages would need to be sustained through 2010 to ward off an even deeper downturn.

But with global stock markets bouncing off March lows amid hope the recession was slackening, policy-makers are in a tight spot. Talk down the economy too much and it could undermine the recent pick-up in confidence. Talk it up and it will be harder to ask for more public money.

U.S. Federal Reserve Chairman Ben Bernanke exemplifies that dilemma. In a rare television interview on March 15, he spoke of "green shoots" of economic recovery, a phrase that has become popular among analysts and investors who are optimistic that the recession is easing.

Yet just days later, the central bank's policy-setting committee surprised financial markets by voting to embark on a $1.15 trillion buying spree of longer-term assets, such as U.S. government bonds, to try to boost the economy.

NOW WHAT?

The Bank of England has also begun buying assets, including government debt, and the European Central Bank is considering similar nonconventional measures to ease credit strains.

What more needs to be done depends largely on whether tentative signs of recovery prove lasting. Christopher Rupkey, an economist with Bank of Tokyo-Mitsubishi in New York, noted that the IMF said synchronized recessions in the midst of financial crises can last almost two years.

"You would think they would do a little bit more to nurture the green shoots," Rupkey said. "Almost to a man and woman, country after country, (world finance leaders are) brutally frank about the outlook. They really risk shooting themselves in the foot if they continue to talk down the world economy and talk about how grim the outlook is."

The primary concern worldwide remains removing bad assets from bank balance sheets. Officials in the United States, Europe and Japan have stressed that fixing the banking system is a prerequisite to restoring economic growth.

"The fact is that we need a solution for the problem of bad assets, and I think we should do this in a European framework, but there will be many different ways for European countries to take," Eurogroup Chairman Jean-Claude Juncker said on Friday.

U.S. regulators are in the midst of examining the 19 largest banks to determine whether they have sufficient resources to withstand a deepening recession.

They are scheduled to release details of how they conducted so-called bank "stress tests" on Friday, the same day that U.S. Treasury Secretary Timothy Geithner is hosting the G7 and G20 finance ministers.

But Harvard's Rogoff, who is a leading scholar on banking crises, said history suggests that even when governments follow all the prescribed rules, it takes years for economic growth to return to pre-crisis levels.

He expects the United States to endure five to seven years of subpar growth with another recession somewhere in that period, largely because the growth rate will be so low that it would take only a small economic shock to derail growth.

"With the massive global government stimulus, are we buying a recovery or are we renting one?" he asked. "It's hard to believe that enlarging the size of the government in the U.S. and China is really the key to long-term growth."